Goodday Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 365,000 shares of stock outstanding. Under Plan II, there would be 285,000 shares of stock outstanding and $3.6 million in debt outstanding. The interest rate on the debt is 10 percent and there are not taxes. At what EBIT the EPS of the two plans is the same?

Goodday Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 365,000 shares of stock outstanding. Under Plan II, there would be 285,000 shares of stock outstanding and $3.6 million in debt outstanding. The interest rate on the debt is 10 percent and there are not taxes. At what EBIT the EPS of the two plans is the same?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 5P

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