FIN 419 ASSIST Perfect Education/fin419assist.cofi FIN 419 ASSIST Perfect Education/fin419assist.cofi | Page 41

a.
Using a discount rate of 9% for this project and the NPV
model, determine whether the company should accept or reject this
project.
b.
Should the company accept or reject it using a discount rate
of 14%?
c.
Should the company accept or reject it using a discount rate
of 21%?
P16-5 (similar to)
Break-even EBIT (with and without taxes).
Alpha Company is
looking at two different capital structures, one an all-equity firm
and the other a levered firm with $4.8 million of debt financing at 7
% interest. The all-equity firm will have a value of $8 million and
400,000 shares outstanding. The levered firm will have 160,000
160,000 shares outstanding.
a.
Find the break-even EBIT for Alpha Company using EPS if
there are no corporate taxes.
b.
Find the break-even EBIT for Alpha Company using EPS if
the corporate tax rate is 15%.
c.
What do you notice about these two break-even EBITs for
Alpha Company?