Assignment:
Rise Against 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 195,000 shares of stock outstanding. Under Plan II, there would be 145,000 shares of stock outstanding and $2.10 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes.
Q1. If EBIT (earnings before interest and taxes) is $550,000, what is the EPS (earnings per share) for each plan?
Q2. If EBIT is $800,000, what is the EPS for each plan?
Q3. What is the break-even EBIT?
Provide complete and step by step solution for the question and show calculations and use formulas.