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Charra [1.4K]
3 years ago
10

Galaxy Products is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under P

lan I, Galaxy would have 245000 shares of stock outstanding. Under Plan II, there would be 237014 shares of stock outstanding and $310000 in debt outstanding. The interest rate on the debt is 9.9 percent and there are no taxes. What is the breakeven EBIT? g
Business
1 answer:
ivann1987 [24]3 years ago
4 0

Answer:

the breakeven EBIT for Galaxy Products is $767,250

Explanation:

Consider the following calculations and formulas of EBIT

EBIT/245,000 = [EBIT- 9.9%* 310,000]/237,014

0.96 EBIT = EBIT- 30690

0.04 EBIT = 30,690

Break Even EBIT = $767,250

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The manager should make an accurate diagnosis of the problem first. With a precise reason as to why customers as fleeing, then he can develop a counter-strategy. Retaining the current member of the crew will not reverse the situation. Reducing prices may affect profitability, which is not the desired result. With low prices, some customers may question the quality of the breakfast.

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