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    Analysis of Capital Structure Plans

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    Analyze the following capital structure plans. You will use the EBIT-EPS analysis to evaluate the two plans. One plan is all equity and one has debt and equity.

    Plan Plan 1: All Equity Plan 2: Some Debt
    Shares of Equity 80,000 50,000
    Debt 0 $2,000,000
    Cost of debt 0 12%
    Interest Expense 0 $240,000
    Tax Rate 34% 34%

    Determine the EBIT indifference point.
    Discuss the implications of EBIT above and below this point.
    Please submit your backup in Excel or other supporting documentation showing how answers were reached.

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    Solution Summary

    This solution analyzes capital structure plans.