Lambdoid corporation is comparing two different capital, Financial Management

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Lambdoid corporation is comparing two different capital

Lambdoid Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Lambdoid would have 200,000 shares of stock outstanding. Under Plan II, there would be 100,000 shares of stock outstanding and $4 million in debt outstanding. The interest rate on the debt is 10% and there are no taxes.

a. If EBIT is $500,000, which plan will result in higher EPS?

b. If EBIT is $3.5 million, which plan will result in higher EPS?

c. What is the break-even EBIT?

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Financial Management: Lambdoid corporation is comparing two different capital

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