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omeli [17]
3 years ago
15

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 230000 shares of stock outstanding. Under Plan II, there would be 224478 shares of stock outstanding and $210000 in debt outstanding. The interest rate on the debt is 8.2 percent and there are no taxes. What is the breakeven EBIT?
Business
1 answer:
ankoles [38]3 years ago
6 0

Answer:

break even EBIT is $717,240.13

Explanation:

given data

stock outstanding = 230000 shares

stock outstanding = 224478 shares

debt outstanding = $210000

interest rate = 8.2 percent

to find out

What is the break even EBIT

solution

we get break even EBIT is here express as

\frac{EBIT}{230000} = \frac{EBIT-210000*0.082}{224478}

EBIT × 224478 = 230000  × ( EBIT - 17220 )

solve it we get

EBIT  = $717,240.13

so break even EBIT is $717,240.13

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