Thanos Plc has 50million shares outstanding at a price of 5 per share. The company is seeking to expand its operations, and requires raising 100million of new capital. The firm has identified two funding opportunities; either to raise the funding via a public bond issue at an annual interest payment of 5 per cent, or alternatively to raise the finance through selling new shares at the current market price. Irrespective of the funding method chosen the company expects to generate expected earnings before interest and taxes (EBIT) 30million per annum in future years. The company pays tax on profits at a rate of 25 per cent.

Calculate the break even level of EBIT that would produce the same level of EPS under both financing plans.

Give your answer in millions.

A company that employs no debt financing has expected earnings before interest and taxes (EBIT) of 40m and the tax rate is 35 per cent. The companys equity is valued at 200m. There are 100m shares outstanding and the market price of a share is 2.00. The company is considering issuing debt of 50m at 8 per cent and using the proceeds to buy back shares. As the finance director of the company you have been asked to provide the following information to the companys board of directors:

Calculate the value of the firm after the increase in gearing and explain the basis for this valuation. Give your answer in millions.