Wild Fruits Limited is comparing two different capital structures. Plan I would

Question

Wild Fruits Limited is comparing two different capital structures. Plan I would result in 8,000 shares and $429,000 in debt. Plan II would result in 13,500 shares and $214,500 in debt. The interest rate on the debt is 9 percent.

Requirement 1:
Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $53,600. The all-equity plan would result in 19,000 shares outstanding. Compute the EPS for each plan

Requirment 2:
what is the break-even level of EBIT for Plan I as compared to that for an all-equity plan

I have requirment 1 Just cant seem to figure out the break even EBIT
cheers

Explanation / Answer

Requirement 1: Plan I EPS = Net income/no of shares =($53,600-9%*$429,000)/8,000= $1.8738 Plan I EPS = Net income/no of shares =($53,600-9%*$214,500 )/13,500 = $2.5404 All equity EPS =$53,600/19,000= $2.8211 Requirement 2: (EBIT-9%*$429,000)/8,000 = EBIT/19,000 19EBIT -733590=8EBIT EBIT= $66,690.00 break-even level of EBIT =$66,690.00

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