Haskell Corp. is comparing two different capital structures. Plan I would result in 18,000 shares of stock and $95,000 in debt. Plan II would result in 14,000 shares of stock and $190,000 in debt. The interest rate on the debt is 5 percent.
Assuming that the corporate tax rate is 40 percent, what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? (The all-equity plan would result in 22,000 shares of stock outstanding.)
Plan I and all equity?
Plan II and all equity?
Assuming that the corporate tax rate is 40 percent, when will EPS be identical for Plans I and II?
EBIT?