Yasmin Corporation is comparing two different capital structures, an all-equity (Plan1) and a levered plan (Plan II). Under Plan 1 Yasmin would have 150,000 shares of stock outstanding. Under Plan II, there would be 100,000 shares of stock outstanding and $1.2 million in debt outstanding. The interest rate of the debt is 5% and there are no taxes.

a. If EBIT is $300,000, what is the EPS for each plan?

Plan 1?

Plan 2?

b. If EBIT is $550,00, what is the EPS for each plan?

Plan 1?

Plan 2?

c-1. What is the break-even EBIT?

Cost of equity?

c-2. What would the cost of equity be if the debt-equity ratio were 1?

c-3. What would the cost of equity be if the debt-equity ratio were zero?