Allegra Inc. has one million shares outstanding. The company is considering the issue of debt of $15 million. The interest rate on this new debt issue will be 8%, and the number of shares after the debt issue will be reduced to 500,000. Given a corporate tax rate of 40%, what is the EBIT that will cause the firm's earnings per share to be indifferent between issuing and not issuing debt?

a). $1,200,000
b). $1,800,000
c). $2,400,000
d). $3,000,000
e). $3,600,000

Answer rating: 100% (QA)

Before issues of debt EBITE EARNING PER SHARE E1000000 DEBT ISSUED 15 MILLIO... View the full answer