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Find the break-even ebit for alpha company

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Question - Alpha Company is looking at two different capital structures, one an all-equity firm and the other a levered firm with $2.88 million of debt financing at 9% interest. The all-equity firm will have a value of $7.2 million and 360,000 shares outstanding. The levered firm will have 216,000 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?

Reference no: EM133177900

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