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What is the break-even ebit

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The NDBA Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, NBA would have 200 shares of stock outstanding. Under Plan II, NDBA would have 100 shares of stock and $5,000 in debt outstanding. The interest rate is 12 percent and there are no taxes.

Problem a. If EBIT is $1,000, which plan results in the higher EPS?

Problem b. If EBIT is $2,000, which plan results in the higher EPS?

Problem c. What is the break-even EBIT; that is, what EBIT generates exactly the same EPS under both plans?

Reference no: EM132888931

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