Ask Question
9 November, 18:03

Alpha Company is looking at two different capital structures, one an all-equity firm and the other a levered firm with $4.6 million of debt financing at 14 % interest. The all-equity firm will have a value of $9.2 million and 460 comma 000 shares outstanding. The levered firm will have 230 comma 000 shares outstanding. a. Find the break-even EBIT for Alpha Company using EPS if there are no corporate taxes. a. What is the break-even EBIT for Alpha Company using EPS if there are no corporate taxes?

+2
Answers (1)
  1. 9 November, 21:30
    0
    The break-even EBIT using EPS is $1,288,000.

    Explanation:

    the break-even EBIT using EPS is the EBIT that will brings EPS under two different capital structure equal.

    Denot X is the EBIT.

    * We have:

    + EPS in all-equity firm = X/460,000

    + EPS in levered firm = (X - interest rate) / 230,000 = (X - 4,600,000 x 14%) / 230,000 = (X - 644,000) / 230,000.

    * We have the equation:

    X/460,000 = (X-644,000) / 230,000 X/460,000 = 2.8 X = $1,288,000.

    So, the break-even EBIT using EPS is $1,288,000.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Alpha Company is looking at two different capital structures, one an all-equity firm and the other a levered firm with $4.6 million of debt ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers