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What are the break-even levels of ebit for each plan

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Destin Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of stock and $90,000 in debt. Plan II would result in 7,600 shares of stock and $198,000 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 $48,000. The all-equity plan would result in 12,000 shares of stock outstanding. What is the EPS for each of these plans?

b. In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan?

c. Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II?

d-1 Assuming that the corporate tax rate is 40 percent, what is the EPS of the firm?

d-2 Assuming that the corporate tax rate is 40 percent, what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan?

d-3 Assuming that the corporate tax rate is 40 percent, when will EPS be identical for Plans I and II?

Reference no: EM131475850

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