You are looking at two alternate capital structures: I is all equity and II is a levered plan.
I II
Debt $0 $3 million
Interest Rate 0 10%
Shares outstanding 240000 160000
Assume a tax rate of 20%.
a. IF EBIT is $ 300,000; compute EPS for both plans.
b. IF EBIT is $ 600,000 compute EPS for both plans.
c. Compute the EBIT break-even point.