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L01 LO 2 6. Break-Even EBIT and Leverage. Silverton Co. is comparing two different capital...

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L01 LO 2 6. Break-Even EBIT and Leverage. Silverton Co. is comparing two different capital structures. Plan I would result in 11,500 shares of stock and $494,000 in debt. Plan II would result in 16,000 shares of stock and $260,000 in debt. The interest rate on the debt is 10 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $68,000. The all-equity plan would result in 21,000 shares of stock outstanding. Which of the three plans has the highest EPS? The lowest? b. In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? Is one higher than the other? Why? c. Ignoring taxes, when will EPS be identical for Plans I and II? Repeat parts (a), (b), and (c) assuming that the corporate tax rate is 35 percent. Are the break-even levels of EBIT different from before? Why or why not? d. R

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