5 NoNuns Cos. has a 20 percent tax rate and has $305,600,000 in assets, currentlyfinanced entirely with equity. Equity is worth $32 per share, and book value of equity isequal to market value of equity. Also, let's assume that the firm's expected values forEBIT depend upon which state of the economy occurs this year, with the possible valuesof EBIT and their associated probabilities as shown below:StateRecession0.25Average0.60Boom0.15Probability of stateExpected EBIT in state $ 6.00 million $11.00 million $18.00 millionThe firm is considering switching to a 20-percent-debt capital structure, and hasdetermined that it would have to pay an 9 percent yield on perpetual debt in eitherevent. What will be the break-even level of EBIT? (Enter your answer in dollars not inmillions. Do not round Intermediate calculations and round your final answer to thenearest whole dollar amount.)EBIT$ 6112000000 ✪

Break Even Level of EBIT = Total Assets * Debt ratio * Interest Rate on Debt

NoNuns Cos. has a 20 percent tax rate and has $305,600,000 in assets, currently financed entirely with equity. Equity is worth $32 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 Recession Probability of state 0.25 Expected EBIT in state $ 6.00 million Average 0.60 $11.00 million Boom 0.15 $18.00 million The firm is considering switching to a 20-percent-debt capital structure, and has determined that it would have to pay an 9 percent yield on perpetual debt in either event. What will be the break-even level of EBIT? (Enter your answer in dollars not in millions. Do not round Intermediate calculations and round your final answer to the nearest whole dollar amount.)

NoNuns Cos. has a 20 percent tax rate and has $305,600,000 in assets, currently financed entirely with equity. Equity is worth $32 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 Recession Probability of state 0.25 Expected EBIT in state $ 6.00 million Average 0.60 $11.00 million Boom 0.15 $18.00 million The firm is considering switching to a 20-percent-debt capital structure, and has determined that it would have to pay an 9 percent yield on perpetual debt in either event. What will be the break-even level of EBIT? (Enter your answer in dollars not in millions. Do not round Intermediate calculations and round your final answer to the nearest whole dollar amount.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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