The company "TechNova" compares two different capital structures, a plan that
based solely on equity (plan A) and a leveraged plan (plan B).
Under plan A, the company will have 300,000 shares outstanding. In accordance with
Plan B, there will be 200,000 shares outstanding and outstanding debt of 3.5
million dollars. The interest rate on the debt is 8% and there are no taxes.
A. What is the break-even EBIT?
B. If EBIT is $1 million, which capital structure (plan A or plan B) is the
better; Give reasons.