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 195,000 shares of stock outstanding. Under Plan II, there would be 145,000 shares of stock outstanding and $2.90 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes.

If EBIT is $475,000, what is the EPS for each plan? (Round your answers to 2 decimal places.(e.g., 32.16))

If EBIT is $725,000, 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.)

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 195,000 shares of stock outstanding. Under Plan II, there would be 145,000 shares of stock outstanding and $2.90 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes.

Explanation / Answer

Ans A Plan A PlanB EBIT $475,000 $475,000 Less: Int $203,000 EBT $475,000 $272,000 No. of Share 195000 145000 EPS $2.44 $1.88 Ans b Plan A PlanB EBIT $725,000 $725,000 Less: Int $203,000 EBT $725,000 $522,000 No. of Share 195000 145000 EPS $3.72 $3.60

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