Question

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

Answer 1

break even EBIT is $717,240.13

Step-by-step 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

`(EBIT)/(230000) = (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