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What is the minimum level of EBIT the company needs

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Question 1 - The National Powerhouse Company currently has no debt in its capital structure. The company has decided to restructure, raising $5 million debt at 12 per cent. ABC currently has 500 000 shares on issue at a price of $200 per share. As a result of the restructure, what is the minimum level of EBIT the company needs to maintain EPS (the break-even EBIT)? Ignore taxes.

Question 2 - ABC associates have estimated EBIT of 400, the tax rate is 35% and the Return on the Unleveraged Firm RU is 14%. Suppose ABC takes up the Debt from 0 to $200 at 10%, what is the Value of Leveraged Firm, Value of Unleveraged Firm and the Value of Equity?

Question 3 - For the National Powerhouse Company given in problem 1, compute the interest tax shield if the tax rate is 35%. If the company maintains the same operations and hence EBIT of $100,000 and the required rate of return on unleveraged firm is 13%, what is the Value of leveraged firm?

Reference no: EM132726223

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