Ask Question
BusinessBusiness
23 February, 03:56

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?

+1
Answers (1)
  1. 23 February, 04:24
    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 the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers
You Might be Interested in
More important than being catchy or well written, a mission statement should be Question options: accurate. succinct. bold. visionary.
Answers (1)
Name a common traits of a sole proprietor
Answers (1)
A client has a massage and asks the company bookkeeper to mail her the bill. the bookkeeper should make which entry to record the invoice
Answers (1)
What would happen to the economy if the president disbanded the board
Answers (1)
If sales of Saudi Arabian oil to the rest of the world increase and Saudis use the proceeds to buy foreign goods, which of the following increases? A. Saudi Arabian net exports but not Saudi Arabian net capital outflow B.
Answers (1)
New Questions in Business
Employers bond employees who handle cash receipts because fidelity bonds reduce the possibility of employing dishonest individuals and Deter dishonesty by making employees aware that insurance companies may investigate and prosecute dishonest acts.
Answers (1)
1. A complaint of sexual harassment by a part-time worker in a hardware business was upheld when the Tribunal found that the employer had failed to take sufficient action in relation to the employee's report of inappropriate behaviour.
Answers (1)
Suppose that the government sets a price floor for milk that is above the competitive equilibrium price With the price floor, consumers are willing to purchase the quantity indicated where the price floor intersects the With the price floor, the
Answers (1)
Choose the best revision of the previous sentence. Because many executives have access to company jets boards of directors have a responsibility to ensure that shareholders are not footing the bill for personal travel.
Answers (1)
Who puts the federal budget together?
Answers (1)
Home » Business » 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.
Sign Up Forgot Password?