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FinanceQ&A LibraryOuthouse Bottled Water is comparing two different capital structures. Under plan A,Outhouse would have 100,000 shares of stock outstanding and no debt. Under plan B,there would be 75,000 shares outstanding and $1 million in debt outstanding. Theinterest rate on the debt is 10 percent and there are no taxes. What is the break-evenEBIT? In other words, what EBIT would produce the same EPS under either capitalstructure?Question

Asked Dec 10, 2019

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Outhouse Bottled Water is comparing two different capital structures. Under plan A,

Outhouse would have 100,000 shares of stock outstanding and no debt. Under plan B,

there would be 75,000 shares outstanding and $1 million in debt outstanding. The

interest rate on the debt is 10 percent and there are no taxes. What is the break-even

EBIT? In other words, what EBIT would produce the same EPS under either capital

structure?

Step 1

Break-even EBIT is the level of EBIT at which EPS of two firm...

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