Destin corp is comparing three different capital structures. plan a would result in 10,000 shares of stock and $90,000 in debt. plan b would result in 7,600 shares of stock and $198,000 in debt. the all equity plan would result in 12,000 shares of stock outstanding. the interest rate on debt is 10%, and the ebit is $48,000. if destin corp has a tax rate of 40%, which of the three plans has the highest eps?

All equity plan (12,000 shares with an EPS of $2.40)

Explanation:

Plan A (10,000 shares):

interest = $90,000 x 10% = $9,000

net income = (ebit - interest) x (1 - 40%) = ($48,000 - $9,000) x 60% = $23,400

earnings per share (EPS) = $23,400 / 10,000 shares = $2.34 per share

Plan B (7,600 shares):

interest = $198,000 x 10% = $19,800

net income = (ebit - interest) x (1 - 40%) = ($48,000 - $19,800) x 60% = $16,920

earnings per share (EPS) = $16,920 / 7,600 shares = $2.23 per share

All equity plan (12,000 shares):

net income = ebit x (1 - 40%) = $48,000 x 60% = $28,800

earnings per share (EPS) = $28,800 / 12,000 shares = $2.40 per share

an online clothing brand

explanation: