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Persnickety Pens has been operating as an all-equity company for the last 50 years and currently has 100,000 shares outs
Posted: Sun Jul 03, 2022 12:56 pm
by answerhappygod
- Persnickety Pens Has Been Operating As An All Equity Company For The Last 50 Years And Currently Has 100 000 Shares Outs 1 (29.15 KiB) Viewed 15 times
Persnickety Pens has been operating as an all-equity
company for the last 50 years and currently has 100,000 shares outstanding and total assets of $900,000. The
company is considering a change to its capital structure by selling debt to retire 30,000 shares. The cost of debt is 6%. What is the EBIT that the
company must earn to be indifferent between the equity and debt structures? All answers are correct. At the breakeven point, the EPS is $0.38 per share for the equity option. Above the breakeven point, the
company would prefer the debt option. At EBIT = $54,000, the
company is indifferent between the capital structure options.