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 with
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 $0.92 million of debt financing at 11% interest. The all-equity firm will have a value of $4.6 million and 460,000 shares outstanding. The levered firm will have 368,000 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 20%.
c.What do you notice about these two break-even EBITs for Alpha Company?
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Investment Analysis and Portfolio Management
Authors: Frank K. Reilly, Keith C. Brown
10th Edition
538482109, 1133711774, 538482389, 9780538482103, 9781133711773, 978-0538482387
