Plan Plan 1: All Equity Plan 2: Some Debt
Shares of Equity 80,000 50,000
Debt 0 $2,000,000
Cost of debt 0 12%
Interest Expense 0 $240,000
Tax Rate 34% 34%
Determine the EBIT indifference point.
Discuss the implications of EBIT above and below this point.
Please submit your backup in Excel or other supporting documentation showing how answers were reached.
This solution analyzes capital structure plans.