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Dream Corp is comparing two different capital structures: an all equity plan (Plan A) and a lev ered plan (Plan B). Under Plan A the company would have 160,000 shares of stock outstanding. Under Plan B, there would be 80,000 shares of stock outstanding and $2.8 million in debt outstanding. The interest on debt is 8% If EBIT is $350,000 which plan will result in the higher EPS? b. If EBIT is $600,000 which plan will result in the higher EPS? c. What is the break even EBIT for the two plans? Please interpret what the break even EBIT you find means. d. What is meant by business risk and financial risk? e. Explain this statement: “The optimal capital structure for a firm is 50% debt and 50% equity.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91622679

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