Annamz Corp. is looking at two possible capital structures. Currently, the firm is an all-equity firm with $1.2 million dollars in assets and 200,000 shares outstanding. The market value of each stock is $6.00. The CEO of Annamz is thinking of leveraging the firm by selling $600,000 of debt financing. The cost of debt is 8% annually, and the current corporate tax rate for Annamz is 30%. What is the break-even EBIT for Annamz with these two possible capital structures?
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Annamz Corp. is looking at two possible capital structures. Currently, the firm is an all-equity firm with $1.2 million dollars in assets and 200,000 shares outstanding. The market value of each stock is $6.00. The CEO of Annamz is thinking of leveraging the firm by selling $600,000 of debt financing. The cost of debt is 8% annually, and the current corporate tax rate for Annamz is 30%.
What is the break-even EBIT for Annamz with these two possible capital structures?
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