Question: Alpha Company is looking at two different capital structures, one an all-equity firm and the other a levered firm with $4.4 million of debt financing at 16% interest. The all-equity firm will have a value of $8.8million and 440,000 shares outstanding. The levered firm will have 220,000 shares outstanding.
a. Find the break-even EBIT for Alpha Company using EPS if there are no corporate taxes.
b. Find the break-even EBIT for Alpha Company using EPS if the corporate tax rate is 20%.
c. What do you notice about these two break-even EBITs for Alpha Company?
a. What is the break-even EBIT for Alpha Company using EPS if there are no corporate taxes? $ (Round to the nearest? dollar.)