A company is comparing three different capital structures: Plan I would result in 15,000 shares of stock outstanding (all-equity plan). Plan II would result in 12,000 shares of stock and €100,000 in debt. Plan III would result in 8,000 shares of stock and €200,000 in debt. The interest rate on the debt is 10 percent. A company expects to earn EBIT €95,000. Ignore taxes.
Instructions:
1.Calculate EPS for each plan. (15 points)
2.Which plan do you recommend to the company? Explain the effect of financial leverage.