Blue Stripes Co. is comparing two different capital structures. Plan I would result in 8700 shares of stock and $323000 in
debt. Plan II would result in 12000 shares of stock and $210800 in debt. The interest rate on the debt is 10 percent.

Requirement 1:

Ignoring taxes compare both of these plans to an all-equity plan assuming that EBIT will be $53100. The all-equity plan
would result in 18200 shares of stock outstanding. Compute the EPS for each plan. (Do not include the dollar signs
($). Round your answers to 2 decimal places (e.g. 32.16).)

Requirement 2:

(a)

In req. (1) what is the break-even level of EBIT for Plan I as compared to that for an all-equity plan?
(Do not include the dollar sign ($).)

(b)

In req. (1) what is the break-even level of EBIT for Plan II as compared to that for an all-equity plan? (Do not include the
dollar sign ($).)

Requirement 3:

Ignoring taxes at what level of EBIT will EPS be identical for Plans I and II? (Do not include the
dollar sign ($).)

Requirement 4:

Assume the corporate tax rate is 30 percent.

(a)

Compute the EPS for each plan. (Do not include the dollar signs ($). Round your answers to 2
decimal places (e.g. 32.16).)

(b)

What is the break-even level of EBIT for Plan I as compared to that for an all-equity plan? (Do not include the dollar sign
($).)

(c)

What is the break-even level of EBIT for Plan II as compared to that for an all-equity plan? (Do not include the dollar sign
($).)

(d)

At what level of EBIT will EPS be identical for Plans I and II? (Do not include the dollar sign
($).)