An All-Equity Financed Firm Has $45,000 in Assets and the Stock

question 12

Multiple Choice

An all-equity financed firm has $45,000 in assets and the stock price is $10. If the firm restructures with 30 percent debt which creates interest expense of $810 per year and the firm's tax rate is 21 percent, what is the break-even EBIT?

• A) $1,157
• B) $1,500
• C) $1,967
• D) $2,700

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Definitions:

Barrier To Entry

Factors that prevent or inhibit new competitors from easily entering an industry or area of business, including high startup costs, strict regulations, and significant technological challenges.

Monopolistic Industry

An industry dominated by a single firm that has control over the market prices and supply of a product or service.

Patent

A legal right granted to an inventor, giving them the exclusive right to make, use, or sell their invention for a certain period of time.

Long Run

A period in economic analysis during which factors of production and costs are fully adjustable, allowing all inputs to production to be varied.