Question

Alpha Company is looking at two different capital structures, one an all-equity firm, and the other a leveraged firm with $2,000,000 of debt financing at 8% interest. The all-equity firm will have $4,000,000 value and 400,000 shares outstanding. The leveraged firm will have 200,000 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 30%.
c. What do you notice about these two break-even EBITS for Alpha Company?



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  • CreatedMay 08, 2014
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