A firm has a total market value of $ 175000 , no debt, and 20,000 shares outstanding . In a normal economy , the EBIT is $30,000 . The EBIT will be 30% higher and 40% lower in an expansion and recession respectively. The firm is considering a recapitalization by issuing $71750 worth of debt that has 6% interest, and using it to repurchase shares.

A firm is considering two different capital structure plans. Plan  is all equity and the firm has 20000 shares outstanding . Under plan, the firm has $ 71750 of debt and 11,800 shares. The interest on the debt is 6% . 

What is the breakeven EBIT?

Answer rating: 100% (QA)

To calculate the breakeven EBIT we need to find the level of EBIT at which the two capital structure ... View the full answer