Answered

Explore Westonci.ca, the top Q&A platform where your questions are answered by professionals and enthusiasts alike. Get quick and reliable solutions to your questions from knowledgeable professionals on our comprehensive Q&A platform. Connect with a community of professionals ready to help you find accurate solutions to your questions quickly and efficiently.

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

Thanks for using our platform. We're always here to provide accurate and up-to-date answers to all your queries. We hope our answers were useful. Return anytime for more information and answers to any other questions you have. Get the answers you need at Westonci.ca. Stay informed by returning for our latest expert advice.