Break-Even EBIT and Leverage. Passion Co. is comparing two different capital structures. Plan I…


Break-Even EBIT and Leverage. Passion Co. is comparing two contrariant consummate structures. Pur-pose I would remainder in 5.000 shares of accumulation and $120,000 in liability. Pur-pose II would remainder in 7.000 shares of accumulation and $72,000 in liability. The cause reprimand on the liability is 10 percent.

a. Ignoring taxes. parallel twain of these pur-poses to an all-equity pur-pose pretentious that  EBlT gain be $15,000. The all-equity pur-pose would remainder in 10,000 shares of accumulation ungathered. Which of the three pur-poses has the leading EPS? The smallest?

b. In distribute (a), what are the break-even levels of EBIT for each pur-pose as paralleld to  that for an all-equity pur-pose? Is one eminent than the other"! Why?

c. Ignoring taxes, when gain EPS be selfsame for Plans I and II?

d. Repeat distributes (a), (b). and (c) pretentious that the corporeprimand tax reprimand is 38 percent.