Kyle Corporation is comparing two different capital structures, an all-equity pl

Question

Kyle Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Kyle would have 755,000 shares of stock outstanding. Under Plan II, there would be 505,000 shares of stock outstanding and $8.75 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes.

Assume that EBIT is $2.4 million. Compute the EPS for both Plan I and Plan II. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32

Assume that EBIT is $2.9 million. Compute the EPS for both Plan I and Plan II. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

What is the break-even EBIT? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)

Kyle Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Kyle would have 755,000 shares of stock outstanding. Under Plan II, there would be 505,000 shares of stock outstanding and $8.75 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes.

Explanation / Answer

Requirement 1

EPS

Plan 1 $3.18

Plan 2 $3.54

Requirement 2

Plan 1 $ 3.84

Plan 2 $ 4.53

Requirement 3

If EPS is $4.53 and no. of share are 505000 then breakeven EBIT is

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