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Question: Nashville Predators is comparing two different capital structures, an all-equity plan (Plan A) and a levered plan (Plan B). Under Plan A, the company would have 250,000 shares of stock outstanding. Under Plan IB, there would be 170,000 shares of stock outstanding and $2.5 million in debt outstanding. The interest rate on the debt is 10 percent and there are no taxes.

a. If EBIT is $700,000, which plan will result in the higher EPS?

b. If EBIT is $1,400,000, which plan will result in the higher EPS?

c. What is the break-even EBIT?

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Category:- Basic Finance
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