Kolby corp. is comparing two different capital structures. plan i would result in 3,000 shares of stock and $90,000 in debt. plan ii would result in 4,000 shares of stock and $42,000 in debt. the interest rate on the debt is 10 percent.
A. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $24,000. The all-equity plan would result in 5,000 shares of stock outstanding. Which of the three plans has the highest EPS? The lowest?
B. In part (a) what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan?