Determine the EPS indifference EBIT level for Poutine Company for the following two scenarios: A debt/equity ratio of .8,pre-tax cost of debt is 4 percent,annual interest payments are $1,000,and the company has 1,000 shares outstanding.In scenario 2,the firm is all equity financed and has 1,500 shares outstanding.The tax rate is 40 percent for both scenarios.
The EPS indifference EBIT level for Poutine Company is:
A) $10,000
B) $3,000
C) $1,500
D) $2,000

Question

Quizplus · Accepted Answer

(EBIT-1,000)*(1−0.4)/1,000=EBIT*(1−0.4)/1,500
EBIT*=3,000

Determine the EPS Indifference EBIT Level for Poutine Company for the Following