Question
Break-even EBIT (with and without taxes). Alpha Company is looking at two different capital structures, one an all-equity firm and the other a levered firm
Break-even EBIT (with and without taxes).
Alpha Company is looking at two different capital structures, one an all-equity firm and the other a levered firm with $2.88 million of debt financing at 8% interest.
The all-equity firm will have a value of $7.2 million and 360,000 shares outstanding. The levered firm will have 216,000 shares outstanding.
a.Find the break-even EBIT for Alpha Company using EPS if there are no corporate taxes.
b.Find the break-even EBIT for Alpha Company using EPS if the corporate tax rate is 35%.
c.What do you notice about these two break-even EBITs for Alpha Company?
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Financial Management For Nonprofit Human Service Organizations
Authors: Raymond Sanchez Mayers
2nd Edition
0398075131, 9780398075132
