Question

Round Hammer 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 175,000 shares of stock outstanding. Under Plan II, there would be 125,000 shares of stock outstanding and $1.7 million in debt outstanding. The interest rate on the debt is 5 percent, and there are no taxes. a. If EBIT is $325,000, what is the EPS for each plan

Answer 1

1.86

Step-by-step explanation:

Data provided as per the question is here below:-

Net income = $325,000

Number of shares outstanding = 175,000

The computation of EPS for each plan is shown below:-

EPS = Net income ÷ Number of shares outstanding

= $325,000 ÷ 175,000

= 1.86

Therefore for computing the EPS we simply applied the above formula.