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

question 5

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,Galaxy would have 178,500 shares of stock outstanding.Under Plan II,there would be 71,400 shares of stock outstanding and $1.79 million in debt outstanding.The interest rate on the debt is 10 percent and there are no taxes.What is the breakeven EBIT?

• A)$287,878.78
• B)$298,333.33
• C)$351,111.11
• D)$333,333.33
• E)$341,414.14

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