Eastern Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a...
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Finance
Eastern Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Eastern would have 265,000 shares of stock outstanding. Under Plan II, there would be 185,000 shares of stock outstanding and $2.8 million in debt outstanding. The interest rate on the debt is 10 percent and there are no taxes.
Requirements:
a. If EBIT is $750,000, which plan will result in the higher EPS?
b. If EBIT is $1,500,000, which plan will result in the higher EPS?
c. What is the break-even EBIT?
SHOW YOUR WORKINGS STEP BY STEP, DO NOT USE EXCEL.
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