Question
Trapper Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would
Trapper Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 175,000 shares of stock outstanding. Under Plan II, there would be 125,000 shares of stock outstanding and $1.7 million in debt outstanding. The interest rate on the debt is 5 percent, and there are no taxes.
a.If EBIT is $325,000, what is the EPS for each plan?(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
b.If EBIT is $575,000, what is the EPS for each plan?(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)c.What is the break-even EBIT?
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