Break Even EBIT
Norfolk Nascent Corporation is comparing two different capital structures, an all equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Norfolk Nascent would have 200,000 shares of stock outstanding. Under Plan II, there would be 100,000 shares of stock outstanding and $1,000,000 in debt outstanding. The interest rate on the debt is 12.00% and there are no taxes.
a. If EBIT is $240,000, calculate EPS for Plan I and Plan II.
Plan I EPS: $ ___________
Plan II EPS: $ __________
b. If EBIT is $360,000, calculate EPS for Plan I and Plan II.
Plan I EPS: $ __________
Plan II EPS: $ __________
C. The break-even EBIT is $________