Break-Even EBIT with Taxes GTB, Inc., has a 34 percent tax rate and has $100 million in

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Break-Even EBIT with Taxes GTB, Inc., has a 34 percent tax rate and has $100 million in assets, currently financed entirely with equity. Equity is worth $7 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below:image text in transcribed

The firm is considering switching to a 40-percent-debt capital structure, and has determined that it would have to pay a 12 percent yield on perpetual debt in either event. What will be the break-even level of EBIT? (LG6)

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Finance Applications And Theory

ISBN: 9780073530673

2nd Edition

Authors: Marcia Cornett, Troy Adair, John Nofsinger

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