Question

Rolston Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Rolston would have 185,000 shares of stock outstanding. Under Plan II, there would be 135,000 shares of stock outstanding and $2.70 million in debt outstanding. The interest rate on the debt is 5 percent and there are no taxes.

  

a.	If EBIT is $375,000, what is the EPS for each plan? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

  

	EPS
Plan I	$
Plan II	$

    

b.	If EBIT is $625,000, what is the EPS for each plan? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

  

	EPS
Plan I	$
Plan II	$

   

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

  

Break-even EBIT

$

Answer 1

Calculations-

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