NoNuns Companies has a 21 percent tax rate and has $350 million in assets, currently financed entirely with equity. Equity is worth $37 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Probability of state Expected EBIT in state Recession 0.25 Average 0.55 Boom $ 5 million $ 10 million 0.20 $ 17 million The firm is considering switching to a 20-percent-debt capital structure, and has determined that it would have to pay an 8 percent yield on perpetual debt in either event. What will be the break-even level of EBIT? Note: Round intermediate calculations. Enter your answer in dollars not millions and round your final answer to the nearest whole dollar amount. EBIT $ 0

Financial Management: Theory & Practice
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Chapter7: Corporate Valuation And Stock Valuation
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NoNuns Companies has a 21 percent tax rate and has $350 million in assets, currently financed entirely
with equity. Equity is worth $37 per share, and book value of equity is equal to market value of equity.
Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy
occurs this year, with the possible values of EBIT and their associated probabilities as shown below:
State
Probability of state
Expected EBIT in state
Recession
0.25
Average
0.55
Boom
$ 5 million
$ 10 million
0.20
$ 17 million
The firm is considering switching to a 20-percent-debt capital structure, and has determined that it
would have to pay an 8 percent yield on perpetual debt in either event. What will be the break-even
level of EBIT?
Note: Round intermediate calculations. Enter your answer in dollars not millions and round your
final answer to the nearest whole dollar amount.
EBIT
$
0
Transcribed Image Text:NoNuns Companies has a 21 percent tax rate and has $350 million in assets, currently financed entirely with equity. Equity is worth $37 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Probability of state Expected EBIT in state Recession 0.25 Average 0.55 Boom $ 5 million $ 10 million 0.20 $ 17 million The firm is considering switching to a 20-percent-debt capital structure, and has determined that it would have to pay an 8 percent yield on perpetual debt in either event. What will be the break-even level of EBIT? Note: Round intermediate calculations. Enter your answer in dollars not millions and round your final answer to the nearest whole dollar amount. EBIT $ 0
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