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Chapter 16 An all-equity firm currently has 2.5 million shares of stock outstanding and is considering borrowing $10 million at 7% and buying back two-fifths

Chapter 16 An all-equity firm currently has 2.5 million shares of stock outstanding and is considering borrowing $10 million at 7% and buying back two-fifths of those shares. Solve for the break-even EBIT assuming a tax rate of zero and then show that (a) at an EBIT above the break-even, EPS would be higher with debt than without debt; and (b) at an EBIT below the break-even, EPS would be lower with debt than without debt

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