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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Authors: Andrew W. Lo, Shomesh E. Chaudhuri
1st Edition
0691183821, 978-0691183824
