The firm is considering switching to a 20-percent-debt

Reference no: EM13477717

NoNuns Cos. has a 30 percent tax rate and has $304,960,000 in assets, currently financed entirely with equity. Equity is worth $32 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below:

State	Recession			Average			Boom
Probability of state		0.20			0.55			0.25
Expected EBIT in state	$	5.80	million	$	10.80	million	$	17.80	million

The firm is considering switching to a 20-percent-debt capital structure, and has determined that it would have to pay an 10 percent yield on perpetual debt in either event. What will be the break-even level of EBIT?(Enter your answer in dollars not in millions. Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.)

Reference no: EM13477717

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