CH17 jawab - Break-even EBIT You are considering two...

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Break-even EBIT You are considering two different capital structures. The first option consists of 20,000 shares of stock. The second option consists of 10,000 shares of stock plus $200,000 of debt with an interest rate of 8%. Ignore taxes. What is the break-even level of EBIT between these two options?
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Break-even EBIT 000 , 32 $ EBIT 000 , 000 , 320 EBIT 000 , 10 ) 000 , 16 ($ 000 , 20 EBIT 000 , 20 EBIT 000 , 10 000 , 10 ) 08 . 000 , 200 ($ EBIT 000 , 20 EBIT EPS EPS L U = = - = × - = =
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A debt-free firm currently has 400,000 shares of stock outstanding. The company is considering reducing the number of shares to 300,000. To do this, the firm will have to borrow $5 million at 8% interest. Ignoring taxes, what is the value of the firm?
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$50 100,000 million 5 $ 300,000 - 400,000 million $5 share per Price = = = 000 , 000 , 20 $ 000 , 000 , 20 $ 000 , 000 , 20 $ 000 , 000 , 5 $ 000 , 000 , 15 $ 50 $ 000 , 400 000 , 000 , 5 $ ) 50 $ 000 , 300 ( V V U L = = + × = + × =
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This note was uploaded on 10/02/2010 for the course ACCOUNTING 10835 taught by Professor 123 during the Spring '10 term at Abu Dhabi University.

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CH17 jawab - Break-even EBIT You are considering two...

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