An existing firm is unlevered and has 100,000 shares of stock outstanding at a market price of $20 per share. The new structure would include $100,000 of debt with a coupon rate (interest rate) of 10 percent. All of the money raised from the debt issue would be used to repurchase stock. What is the break-even level of EBIT between the two structures? Ignore taxes.
The break-even level of... View the full answer