Problem:
Becker Industries is considering an all equity capital structure against one with both debt and equity. The all equity capital structure would consist of 30,000 shares of stock. The debt and equity option would consist of 15,000 shares of stock plus $255,000 of debt with an interest rate of 8 percent.
Required:
Question: What is the break-even level of earnings before interest and taxes between these two options? Ignore taxes.
- $25,800
- $10,200
- $40,800
- $30,600
- $20,400
Note: Provide support for your underlying principle.