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    Break-Even EBIT

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    Duval Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Duval would have 400,000 shares of stock outstanding. Under Plan II, there would be 200,000 shares of stock outstanding and $5 million in debt outstanding. The interest rate on the debt is 10%, and there are no taxes.

    a. If EBIT is $600,000, which plan will result in the higher EPS?

    b. If EBIT is $5.5 million, which plan will result in the higher EPS?

    c. What is the break-even EBIT?

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    https://brainmass.com/business/accounting/break-even-ebit-3395

    Solution Preview

    Plan a)400,000 Plan b )200000 + 5 Million
    <br> EPS
    <br> ...

    Solution Summary

    Duval Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Duval would have 400,000 shares of stock outstanding. Under Plan II, there would be 200,000 shares of stock outstanding and $5 million in debt outstanding. The interest rate on the debt is 10%, and there are no taxes.

    $2.19

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