Consider the following financial leverage information for ABC Corporation.The debt pays 10% annually in interest and the tax rate is 40%.For what EBIT will the EPS be equal for either capital structure?

Question

Quizplus · Accepted Answer

EPS = Net Income / # of shares;
EPS = (EBIT - INTEREST)* (1-T)/ # of shares
(EBIT - $0)* .60 / 100,000 = (EBIT - $25000)*.60/ 50,000
EBIT = $50,000

Consider the Following Financial Leverage Information for ABC Corporation