1. An all-equity firm has 3 million shares outstanding and is considering borrowing $5 million at...

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1. An all-equity firm has 3 million shares outstanding and is considering borrowing $5 million at an annual rate of 7% and using the proceeds to buy back one-fourth of its outstanding shares. What is the Break-Even EBIT? What is the EPS for each capital structure (unlevered and levered) at the Break-Even EBIT? What is the EPS for each capital structure at an EBIT of $1.8 million? What is the EPS for each capital structure at an EBIT of $800,000? UNLEVERED FIRM SHARES OUTSTANDING PERCENT TO BE REPURCHASED LEVERED FIRM BORROWING 2 ANNUAL RATE ANNUAL INTEREST 4 SHARES OUTSTANDING 5 6 IS THE BREAK-EVEN EBIT ("YES" OR "NO")?: 8 $2,000,000 9 $1,800,000 20 $1,600,000 21 $1,400,000 22 $1,200,000 23 $1,000,000 24 $800,000 25 26 EPS AT BREAK-EVEN EBIT 27 UNLEVERED 28 LEVERED 29 30 EPS AT EBIT OF $1,800,000 31 UNLEVERED 32 LEVERED 33 34 EPS AT EBIT OF $1,000,000 35 UNLEVERED 36 LEVERED 37 G+ 1. An all-equity firm has 3 million shares outstanding and is considering borrowing $5 million at an annual rate of 7% and using the proceeds to buy back one-fourth of its outstanding shares. What is the Break-Even EBIT? What is the EPS for each capital structure (unlevered and levered) at the Break-Even EBIT? What is the EPS for each capital structure at an EBIT of $1.8 million? What is the EPS for each capital structure at an EBIT of $800,000? UNLEVERED FIRM SHARES OUTSTANDING PERCENT TO BE REPURCHASED LEVERED FIRM BORROWING 2 ANNUAL RATE ANNUAL INTEREST 4 SHARES OUTSTANDING 5 6 IS THE BREAK-EVEN EBIT ("YES" OR "NO")?: 8 $2,000,000 9 $1,800,000 20 $1,600,000 21 $1,400,000 22 $1,200,000 23 $1,000,000 24 $800,000 25 26 EPS AT BREAK-EVEN EBIT 27 UNLEVERED 28 LEVERED 29 30 EPS AT EBIT OF $1,800,000 31 UNLEVERED 32 LEVERED 33 34 EPS AT EBIT OF $1,000,000 35 UNLEVERED 36 LEVERED 37 G+