Square Block Company 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 350,000 shares of stock
outstanding. Under Plan II, there would be 225,000 shares of stock
outstanding and $5 million in debt outstanding. The interest rate
on the debt is 10 percent, and there are no taxes.
a.
If EBIT is $1,000,000,
which plan will result in the higher EPS?
b....