The EBIT–EPS Analysis. Amsterdam Products, Inc., is evaluating two financing plans. Key data are given below. Assume a 50 percent tax rate and an expected EBIT of $400,000.
Plan A Plan B
Bonds $80,000 at 9% $150,000 at 10%
Preferred stock 8,000 shares of $3 4,000 shares of $3.50
Common stock 20,000 shares 23,000 shares
Determine (a) the EPS for each plan, and (b) the financial break-even points for each plan. (c) Draw the EBIT–EPS graph. (d ) At what level of EBIT would the company be indifferent as to which of these two plans is selected?
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