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Linkin Park 100000

Price: $1.99


Linkin Park Corporation is comparing two different capital
structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under
Plan I, Linkin Park would have 100,000 shares of stock outstanding. Under
Plan II, there would be 50,000 shares of stock outstanding and $1.5 million in
debt outstanding. The interest rate on the debt is 10 percent and there are no taxes.

a. If EBIT is $200,000, which plan will result in the higher EPS?
b. If EBIT is $700,000, which plan will result in the higher EPS?
c. What is the break-even EBIT?

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