164 Break-even EBIT(with and without taxes).

Alpha Company is looking at two different capitalstructures, one anall-equity firm and the other a levered firm with $5.04million of debt financing at7% interest. Theall-equity firm will have a value of $8.4million and420,000shares outstanding. The levered firm will have168,000shares outstanding.

a. Find thebreak-even EBIT for Alpha Company using EPS if there are no corporate taxes.

b. Find thebreak-even EBIT for Alpha Company using EPS if the corporate tax rate is40%.

c. What do you notice about these twobreak-even EBITs for AlphaCompany?

165 Pecking order hypotheses.

Rachel can raise capital from the sources in the screen shot:

What isRachel's weighted average cost of capital if she needs to raise

a.$15,000?

b.$20,000?

c.$30,000?