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29 Sep 2019
Question 1: What is the significance of the critical EBIT? Can we use it to make the capital acquisition decision?
Question 1: What is the significance of the critical EBIT? Can we use it to make the capital acquisition decision?
16 Mar 2024
Trinidad TremblayLv2
29 Sep 2019
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| Old Structure = 100% Equity | |||
| EBIT | 20,000 | 35,000 | 50,000 |
| Interest | 0 | 0 | 0 |
| Net Income | 20,000 | 35,000 | 50,000 |
| New Structure = 75% Equity, 30% Debt | |||
| EBIT | 20,000 | 35,000 | 50,000 |
| Interest | 6,300 | 6,300 | 6,300 |
| Net Income | 13,700 | 28,700 | 43,000 |
Based on the calculations above what would your capital structuring decision be at an EBIT of $50,000? What about $20,000? What is the Break-even EBIT?
