Galaxy Products Is Comparing Two Different Capital Structures, an All-Equity

Multiple Choice

Galaxy Products is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II) . Under Plan I, the company would have 112,000 shares of stock outstanding. Under Plan II, there would be 75,000 shares of stock outstanding and $600,000 in debt. The interest rate on the debt is 6.7 percent and there are no taxes. What is the break-even EBIT?

A) $87,879
B) $121,686
C) $101,111
D) $133,333
E) $91,414