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Question: Foundation, Inc., is comparing two different


Foundation, Inc., 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 145,000 shares of stock outstanding. Under Plan II, there would be 125,000 shares of stock outstanding and $716,000 in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes.
a. If EBIT is $300,000, which plan will result in the higher EPS?
b. If EBIT is $600,000, which plan will result in the higher EPS?
c. What is the break-even EBIT?


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