Kelso Electric is an all-equity firm with 43,250 shares of stock outstanding. The company is considering the issue of $295,000 in debt at an interest rate of 9 percent and using the proceeds to repurchase stock. Under the new capital structure, there would be 26,500 shares of stock outstanding. Ignore taxes. What is the break-even EBIT between the two plans?

Kelso Electric is an all-equity firm with 43,250 shares of stock outstanding. The company is considering the issue of $295,000 in debt at an interest rate of 9 percent and using the proceeds to repurchase stock. Under the new capital structure, there would be 26,500 shares of stock outstanding. Ignore taxes. What is the break-even EBIT between the two plans?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter15: Capital Structure Decisions

Section: Chapter Questions

Problem 11P: The Rivoli Company has no debt outstanding, and its financial position is given by the following...

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