(ONLY NEED PART C) Rise Against Corporation is comparing two different capital s

Question

(ONLY NEED PART C)

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 185,000 shares of stock outstanding. Under Plan II, there would be 135,000 shares of stock outstanding and $1.90 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes.

  

If EBIT is $425,000, what is the EPS for each plan? (Round your answers to 2 decimal places.(e.g., 32.16))

  

    

If EBIT is $675,000, 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.)

  

(ONLY NEED PART C)

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 185,000 shares of stock outstanding. Under Plan II, there would be 135,000 shares of stock outstanding and $1.90 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes.

Explanation / Answer

Rise agains corporation

(a) Computation of EPS

(b) Computation of EPS

(c) Let Break even EBIT = X

X/185000 = (X-133000)/135000

X = 491200

Thus break-even level of EBIT = 491200

Particulars Plan I Plan II EBIT 425000 425000 Less: Interest 0 133000 EBT or EAT 425000 292000 No. of shares 185000 135000 EPS 2.30 2.16

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