Use leveraged or unleveraged capital structure

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Reference no: EM131586560

Kelso Electric is debating whether to use a leveraged or 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 $280,000 of debt with an interest rate of 7%. What is the break-even level of EBIT between these two options? The company’s tax rate is 35%. Please be thorough and explain each step.

Reference no: EM131586560

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Use leveraged or unleveraged capital structure : Kelso Electric is debating whether to use a leveraged or an unleveraged capital structure. What is the break-even level of EBIT between these two options?

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