Yasmin Corporation is comparing two different capital structures, an all-equity

Question

Yasmin Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Yasmin would have 180,000 shares of stock outstanding. Under Plan II, there would be 130,000 shares of stock outstanding and $2.6 million in debt outstanding. The interest rate on the debt is 8 percent and there are no taxes.

a.What is the break-even EBIT?

If EBIT is $575,000, what is the EPS for each plan?

If EBIT is $825,000, what is the EPS for each plan?

Yasmin Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Yasmin would have 180,000 shares of stock outstanding. Under Plan II, there would be 130,000 shares of stock outstanding and $2.6 million in debt outstanding. The interest rate on the debt is 8 percent and there are no taxes.

Explanation / Answer

a.What is the break-even EBIT?

Solving For EBIT We get EBIT= 748800

If EBIT is $575,000, what is the EPS for each plan?

If EBIT is $825,000, what is the EPS for each plan?

Solving For EBIT We get EBIT= 748800

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