Break-even level of earnings before interest and taxes

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Reference no: EM13811773

Kelso Electric is debating between a leveraged and an unleveraged capital structure. The all equity capital structure would consist of 40,000 shares of stock. The debt and equity option would consist of 25,000 shares of stock plus $250,000 of debt with an annual interest rate of 6 percent. What is the break-even level of earnings before interest and taxes (EBIT) between these two options? Ignore taxes.

HINT: Remember that the break-even point here means the EBIT where the EPS is the same for the unlevered and levered company.

$1,242,208

$244,141

$846,333

$49,667

$40,000

Reference no: EM13811773

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