DAR Corporation is comparing two different capital structures: an all-equity pla

Question

DAR Corporation is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 170,000 shares of stock outstanding. Under Plan II, there would be 120,000 shares of stock outstanding and $1.6 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes.

What is the break-even EBIT? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

What is the break-even EBIT? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Explanation / Answer

BREAKEAVEN EBIT

Where plan1=Plan II ie

Interest =$1600000*8%=$128000

EBIT/170000 = (EBIT-$128000)/120000

120000*EBIT=170000EBIT-$128000*170000

170000EBIT-120000EBIT=$21760000000

50000EBIT=$21760000000

EBIT=$21760000000/50000

EBIT=$435200

break-even EBIT=$435200

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.