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Calculating EPS at different levels of EBIT

Rise Against Corporation is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 195,000 shares of stock outstanding. Under Plan II, there would be 145,000 shares of stock outstanding and $2.10 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes.

1. If EBIT (earnings before interest and taxes) is $550,000, what is the EPS (earnings per share) for each plan?

2. If EBIT is $800,000, what is the EPS for each plan?

3. What is the break-even EBIT?

Solution Summary

Solution depicts the steps to calculate EPS at different levels of EBIT. It also determines the break-even level of EBIT.

$2.19