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At what EBIT will the two forms of financing

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Question - Absolutely Inc. is expecting to raise $5 million either through the issue of stock or bonds. It currently has $1,000,000 in debt paying interest of 10%. If it issues new bonds, it will have to pay a coupon of 12% annually. Conversely, it could issue shares at $40 each. The current number of shares outstanding is 400,000. The marginal tax rate is 35%. At what EBIT will the two forms of financing, i.e. between stocks and bonds, be the same, i.e. have the same EPS?

Reference no: EM132972497

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