An unlevered ﬁrm with a market value of $1 million has 50,000 shares outstanding. The ﬁrm restructures itself by issuing 200 new bonds with face value $1,000 and an 8% coupon. The ﬁrm
Uses the proceeds to repurchase outstanding stock. In considering the newly levered versus
Formerly unlevered ﬁrm, what is the break-even EBIT? Ignore taxes.
A) $25,000
B) $50,000
C) $75,000
D) $80,000
E) $95,000

Question

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The Answer of An unlevered ﬁrm with a market value of $1 million has 50,000 shares outstanding. The ﬁrm restructures itself by issuing 200 new bonds with face value $1,000 and an 8% coupon. The ﬁrm
Uses the proceeds to repurchase outstanding stock. In considering the newly levered versus
Formerly unlevered ﬁrm, what is the break-even EBIT? Ignore taxes.
A) $25,000
B) $50,000
C) $75,000
D) $80,000
E) $95,000

An Unlevered ﬁRm with a Market Value of $1 Million