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Foundation, Incorporated, 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 170,000 shares of stock outstanding. Under Plan II, there would be 120,000 shares of stock outstanding and $2.4 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes. a. If EBIT is $450,000, what is the EPS for each plan? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. If EBIT is $700,000, what is the EPS for each plan? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. c. What is the break-even EBIT? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567. a. Plan I EPS Plan II EPS b. Plan I EPS Plan II EPS c. Break-even EBIT

Foundation, Incorporated, 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 170,000 shares of stock outstanding. Under Plan II, there would be 120,000 shares of stock outstanding and $2.4 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes. a. If EBIT is $450,000, what is the EPS for each plan? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. If EBIT is $700,000, what is the EPS for each plan? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. c. What is the break-even EBIT? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567. a. Plan I EPS Plan II EPS b. Plan I EPS Plan II EPS c. Break-even EBIT

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Foundation, Incorporated, 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 170,000 shares of stock outstanding. Under Plan II, there would be 120,000 shares of stock outstanding and $2.4 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes. a. If EBIT is $450,000, what is the EPS for each plan? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. If EBIT is $700,000, what is the EPS for each plan? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. c. What is the break-even EBIT? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567. a. Plan I EPS Plan II EPS b. Plan I EPS Plan II EPS c. Break-even EBIT
Transcribed Image Text:Foundation, Incorporated, 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 170,000 shares of stock outstanding. Under Plan II, there would be 120,000 shares of stock outstanding and $2.4 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes. a. If EBIT is $450,000, what is the EPS for each plan? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. If EBIT is $700,000, what is the EPS for each plan? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. c. What is the break-even EBIT? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567. a. Plan I EPS Plan II EPS b. Plan I EPS Plan II EPS c. Break-even EBIT
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