Caligula Corp. has 870,000 shares outstanding, currently trading at $48. The company is borrowing $3,200,000 to buy back some shares. The interest rate is 9%. Assume that the buy-back does not affect the stock price. What is the break-even EBIT if there are no taxes? What is the break-even EBIT if the tax rate is 34%?
Caligula Corp. has 870,000 shares outstanding, currently trading at $48. The company is borrowing $3,200,000 to buy back some shares. The interest rate is 9%. Assume that the buy-back does not affect the stock price. What is the break-even EBIT if there are no taxes? What is the break-even EBIT if the tax rate is 34%?
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter15: Capital Structure Decisions
Section: Chapter Questions
Problem 11P: The Rivoli Company has no debt outstanding, and its financial position is given by the following...
Question
Caligula Corp. has 870,000 shares outstanding, currently trading at $48. The company is borrowing $3,200,000 to buy back some shares. The interest rate is 9%. Assume that the buy-back does not affect the stock price.
What is the break-even EBIT if there are no taxes?
What is the break-even EBIT if the tax rate is 34%?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you