Smith Steel Works is debating between its current leveraged and an unleveraged capital structure.

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Smith Steel Works 2020 Income Statement Smith Steel Works Common Stock Data 2020 Current Price per share Shares Outstanding Last Dividend per share Earnings per share $ Expected dividend growth $24.00 100,000 1.5 3.00 10.00% Net Sales Cost of Goods Sold Depreciation EBIT Interest Paid Taxable income Taxes (40% MTR) Net Income $3,000,000 $2,000,000 $300,000 $700,000 $200,000 $500,000 $200,000 $300,000 2000 Bond Data Bonds Outstanding Term to maturity (years) Par value per bond Annual Coupon rate Payment frequency Market price per bond Dividends Paid $150,000 8 $1,000.00 10.00% semi-annual $1,200.00 Smith Steel Works 2019 and 2020 Balance Sheet Cash Accounts Receivable Assets 2019 $160,000 $400,000 $320,000 $880,000 2020 $190,000 $450,000 $360,000 $1,000,000 Liabilities and Owner's Equity 2019 Accounts Payable $310,000 Notes Payable $220,000 Current Liabilities $530,000 2020 $350,000 $250,000 $600,000 Inventory Current Assets Long Term Debt Total Liabilities $1,800,000 $2,330,000 $2,000,000 $2,600,000 Net Fixed Assets $2,700,000 $3,000,000 Common Stock Retained Earnings Total Owner's Equity $1,000,000 $250,000 $1,250,000 $1,000,000 $400,000 $1,400,000 Total Assets $3,580,000 $4,000,000 Total Liab. & OE $3,580,000 $4,000,000 Industry Data 2020: ROE = PM XTAT X EM ROE = 10% x 1 x 1.529 = 15.29% Inventory Period = 45 Accounts Receivable Period = 60 Payables Period = 60 Smith Steel Works is debating between its current leveraged and an unleveraged capital structure. The all equity capital structure would consist of 600,000 shares of stock. The current capital structure consists of 400,000 shares of stock plus $3,000,000 of debt with an interest rate of 10%. What is the break-even EBIT? Given Smith Steel Works' EBIT, what is your recommendation