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 200,000 shares of stock outstanding. Under Plan II, there would be 150,000 shares of stock outstanding and $2.2 million in debt outstanding. The interest rate on the debt is 5 percent, and there are no taxes. a. If EBIT is $350,000, 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 $600,000, 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? A 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

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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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 200,000 shares of stock outstanding. Under Plan II, there would be
150,000 shares of stock outstanding and $2.2 million in debt outstanding. The
interest rate on the debt is 5 percent, and there are no taxes.
a. If EBIT is $350,000, 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 $600,000, 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? A
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 200,000 shares of stock outstanding. Under Plan II, there would be 150,000 shares of stock outstanding and $2.2 million in debt outstanding. The interest rate on the debt is 5 percent, and there are no taxes. a. If EBIT is $350,000, 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 $600,000, 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? A 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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