Contrail Air, Inc., is looking at two capital structures.
Plan A is an all equity with 500,000 shares outstanding
Plan B is a levered plan with 320,000 shares outstanding and debt of $3,467,000 outstanding. The interest rate on the debt is 8 percent, and there are no taxes.
If EBIT is $500,000, which plan will result in the higher EPS?
If EBIT is $800,000, which plan will result in the higher EPS?
What is the break-even EBIT?
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