Round hammer 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 180,000 shares of stock outstanding. under plan ii, there would be 130,000 shares of stock outstanding and $1.8 million in debt outstanding. the interest rate on the debt is 6 percent, and there are no taxes.

a. if ebit is $225,000, what is the eps for each plan?

b. if ebit is $475,000, what is the eps for each plan?

c. what is the break-even ebit?

a. For plan I: $1.25; For plan II: $0.9

b. For plan I: $2.64; For plan II: $2.82

c. The break even EBIT is $388,800

Explanation:

a. Under Plan I: Net income = EBIT = $225,000 => EPS = Total net income/ shares outstanding = 225,000/180,000 = $1.25;

   Under Plan II: Net income = EBIT - Interest expenses = 225,000 - 1,800,000 x 6% = 117,000 => EPS = EPS = Total net income/ shares outstanding = 117,000/130,000 = $0.9;

b. Under Plan I: Net income = EBIT = $475,000 => EPS = Total net income/ shares outstanding = 475,000/180,000 = $2.64;

   Under Plan II: Net income = EBIT - Interest expenses = 475,000 - 1,800,000 x 6% = 367,000 => EPS = EPS = Total net income/ shares outstanding = 367,000/130,000 = $2.82;

c. Denote the break-even EBIT as x.

At break-even EBIT, EPS will be the same for two structures.

=> x/180,000 = (x - 1,800,000 x 6%)/ 130,000 <=> 13x/18 = x - 108,000 <=> 1,08,000 = 5x/18 <=> x = 108,000 x 18/5 = $388,800.

hi,

henry is an economist and wants to understand the relationship between inflation and consumer spending habits. for his research, he needs the consumer price index for 2014 and the inflation rate. based on the prices of goods given, what will he find to be the cpi and inflation rate for 2014? assume that a consumer’s basket for three consecutive years consists of the following:

you dont privide answer choices.

answer - 15% of a inflatation rate is 15% less in cpi