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ABC Corporation currently has no debt. It has 1 , 0 0 0 , 0 0 0 shares issued that trade at $ 1 0

ABC Corporation currently has no debt. It has

1, 000, 000

shares issued that trade at $

10 .

It is considering issuing $

4, 000, 000

in new debt at a cost of

10 %

and buying back

40 %

of its

equity. At what level of EBIT would the firm be indifferent to whether to buy back new

shares or retain the current capital structure?

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