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San Diego State University Operations And Supply Chain Management Assignment Help - Income

Question - EBIT and Leverage. W ellington Boots Ltd is an all equity-financed firm that has $5 400 000 of equity
finance consisting of 3 000 000 ordinary shares outstanding. The current share price is $1.80.
Wellington Boots is considering changing its capital structure. It is evaluating the use of debt in its
capital structure and proposes to borrow $1 800 000 and use the proceeds to purchase some of its
shares. The interest rate on debt is 7% p.a. and the company tax rate is 30%.
a. Should Wellington Boots change its capital structure if EBIT is expected to be $700 000?
b. Given the information above, what is the break-even EBIT point?

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