Break-even EBIT (with and without taxes). Alpha company is looking at two different capital structures, one an all-equity firm and other a levered firm with $2.52 million of debt financing at 7% interest. The all-equity firm will have a value of $8.4 million and 420,000 shares outstanding. The levered firm will have 294,000 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?