Answer:
So, Break-even EBIT is $265,643.45
Explanation:
Let Break-even EBIT be $x
Number of shares outstanding = 150,000
Current Price of share = $39.36
EPS = EBIT / Number of shares outstanding
EPS = $x / 150,000
Levered Plan:
Value of Debt = $100,000
Interest Rate = 9.6%
Interest Expense = 9.6%
*$100,000 = $9600
Number of shares repurchased = $100,000 / $39.36
Number of shares repurchased = $2,541
Number of shares outstanding = 150,000 - 2,541
Number of shares outstanding = 147,459
EPS = (EBIT - Interest Expense) / Number of shares outstanding
EPS = ($x - $9600) / 147,459
EPS under All equity plan = EPS under levered plan
$x / 150,000 = ($x - $9600) / 147,459
147,459 * $x = 150,000 * $x - $675,000,000
$675,000,000 = 2,541 * $x
$x = $265,643.45
So, Break-even EBIT is $265,643.45
