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 $0.72 million of debt financing at 12% interest. The all-equity firm will have a value of $3.6 million and 360,000 shares outstanding. The levered firm will have 288,000 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 25%. c. What do you notice about these two break-even EBITS for Alpha Company?

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 $0.72 million of debt financing at 12% interest. The all-equity firm will have a value of $3.6 million and 360,000 shares outstanding. The levered firm will have 288,000 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 25%. c. What do you notice about these two break-even EBITS for Alpha Company?

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter10: The Cost Of Capital

Section: Chapter Questions

Problem 22IC: COST OF CAPITAL Coleman Technologies is considering a major expansion program that has been proposed...

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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 $1.84 million of debt financing at 15% interest. The all-equity firm will have a value of $4.6 million and 460,000 shares outstanding. The levered firm will have 276,000 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 40%. c. What do you notice about these two break-even EBITS for Alpha Company? ... a. What is the break-even EBIT for Alpha Company using EPS if there are no corporate taxes? (Round to the nearest dollar.)
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Outhouse Bottled Water is comparing two different capital structures. Under plan A,Outhouse would have 100,000 shares of stock outstanding and no debt. Under plan B,there would be 75,000 shares outstanding and $1 million in debt outstanding. Theinterest rate on the debt is 10 percent and there are no taxes. What is the break-evenEBIT? In other words, what EBIT would produce the same EPS under either capitalstructure?
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Please help... Keenan Corp is comparing two different capital structures. Plan I would result in 7,000 shares of stock and 160,000 in debt. Plan II would result in 5,000 shares of stock and 240,000 in debt. The Interest rate is 10 percent. Tax rate is 40 percent. 1. Compare both of these plans to an all-equity plan assuming that EBIT will be 39,000. The all-equity plan would result in 11,000 shares of stock outstanding. Which of the three plans has the highest EPS ? The Lowest ? 2. in part (1), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? Is one higher than the other ? why? Thank youuuu
A)Company Z is a computer manufacturing company that is considering diversifying into financial services. This will require an investment of £100 million and this is to be raised via an equity issue. Given the following information, calculate the weighted average cost of capital (WACC) making sure that you clearly state any assumptions made: Dividend per share, d0 = 10p.The market price per share, PE = 108p cumulative div.Earnings per share, eps = 15p.Book Value of Capital Employed = £8,400,000.There are 28 million shares in issue.£30m. 17% irredeemable debt currently quoted at £120 ex int. 800,000, 8% redeemable debentures which are redeemablein 4 years’ time and have a current market price of £82.50 ex int. £5m. 7-year term loan at 5% over base.Bank base rate = 11%.Corporation tax = 30%. B)What assumptions lie behind the use of the WACC as a discount rate in investment appraisal. C)In light of the above assumptions and the answer to part (a), is it safe for Company Z to use the…
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