Different capital structures-an all-equity plan-levered plan

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Reference no: EM13915003

BNB Bank is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the bank would have 800,000 shares of stock outstanding. Under Plan II, there would be 320,000 shares of stock outstanding and $10 million in debt outstanding. The interest rate on the debt is 10 percent, and there are no taxes.

a. If EBIT is $1.5 million, which plan will result in the higher EPS?

b. If EBIT is $5 million, which plan will result in the higher EPS?

c. What is the break-even EBIT?

Reference no: EM13915003

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