Question: Beta Gamma and Delta companies are similar in every way
Beta, Gamma, and Delta companies are similar in every way except for their capital structures. Beta is an all-equity firm with $3,600,000 of value and 100,000 shares outstanding. Gamma is a leveraged firm with the same value as Beta but $1,080,000 in debt at 9% and 70,000 shares outstanding. Delta is a leveraged firm with $2,160,000 in debt at 12% and 40,000 shares outstanding. What are the break-even EBITs for Beta and Gamma, Beta and Delta, and Gamma and Delta companies if the corporate tax rate is 40% for all three companies?
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