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Basic Software Company has 10 million shares outstanding with price 5.75. It assumes 100 million of debt for one year. It pays 8% interest on

Basic Software Company has 10 million shares outstanding with price 5.75. It

assumes 100 million of debt for one year. It pays 8% interest on this debt. This debt

increases the cost of financial stress by 4 million. Share price decreases to 5.47.

The corporate tax rate is 20%. However, interest is deductible only up to 30% of income

before interest, EBIT.

Calculate EBIT

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