Answered

Looking for reliable answers? Westonci.ca is the ultimate Q&A platform where experts share their knowledge on various topics. Get immediate and reliable solutions to your questions from a community of experienced professionals on our platform. Get immediate and reliable solutions to your questions from a community of experienced professionals on our platform.

Kelso Electric is debating between a leveraged and an unleveraged capital structure. The all equity capital structure would consist of 40,000 shares of stock. The levered capital structure would consist of 25,000 shares of stock plus $280,000 of debt with an interest rate of 7 percent. What is the break-even level of earnings before interest and taxes between these two options

Sagot :

abiolataiwo2015

Answer:

$52,267

Explanation:

Calculation to determine the break-even level of earnings before interest and taxes between these two options

EBIT/40,000 = [EBIT- ($280,000 ×0.07)]/25,000

EBIT/40,000 = [EBIT - ($19,600)]/25,000

Cross multiply

25,000EBIT=40,000(EBIT-19,600)

25,000EBIT=40,000EBIT-784,000,000

EBIT = $52,267

Therefore the break-even level of earnings before interest and taxes between these two options is $52,267

We appreciate your time. Please come back anytime for the latest information and answers to your questions. We appreciate your time. Please come back anytime for the latest information and answers to your questions. Keep exploring Westonci.ca for more insightful answers to your questions. We're here to help.