Answer:
See below
Explanation:
Break even EBIT is when earnings per share of the two plans are equal as shown below;
EPS in the first plan = EBIT/Number of shares
There are no interest and taxes
EPS in the second plan = EBIT - (Interest rate × Debt) / Number of shares. No taxes
EBIT/29,000 = EBIT - (6% × $220,000)/17,000
EBIT/29,000 = EBIT - $13,200/17,000
Cross multiply
17,000 (EBIT) = 29,000(EBIT - $13,200)
17,000EBIT = 29,000EBIT - $382,800,000
Collect like terms
$382,800,000 = 29,000EBIT - 17,000EBIT
EBIT = $382,800,000/12,000
EBIT = $31,900
