Rise Against Corporation is comparing two different capital structures: an all-e

Question

Rise Against Corporation is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 170,000 shares of stock outstanding. Under Plan II, there would be 120,000 shares of stock outstanding and $1.60 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes.

If EBIT is $525,000, what is the EPS for each plan? (Round your answers to 2 decimal places.(e.g., 32.16))

If EBIT is $775,000, what is the EPS for each plan? (Round your answers to 2 decimal places.(e.g., 32.16))

What is the break-even EBIT? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

If EBIT is $525,000, what is the EPS for each plan? (Round your answers to 2 decimal places.(e.g., 32.16))

Explanation / Answer

A) FOR EBIT $525000

B) FOR EBIT $775000

C) BREAK EVEN EBIT =$128,000

IT IS THE POINT WHERE FIXED EXPENSE OF THE COMPANY IS EQUAL TO EBIT AND HERE THE FIXED EXPENSE IS INTEREST

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