Question

DAR 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 155,000 shares of stock outstanding. Under Plan II, there would be 105,000 shares of stock outstanding and $1.3 million in debt outstanding. The interest rate on the debt is 6 percent, and there are no taxes.

1) If EBIT is $200,000, what is the EPS for each plan?

EPS

Plan I $ ________
Plan II $ ________

2) If EBIT is $450,000, what is the EPS for each plan?

EPS

Plan I $ _______
Plan II $ _______

3) What is the break-even EBIT?
break-even EBIT $ _________

Answer 1

The answer and procedures of the exercise are attached in the following archives.

Explanation

You will find the procedures, formulas or necessary explanations in the archive attached below. If you have any question ask and I will aclare your doubts kindly.