Galaxy Products Is Comparing Two Different Capital Structures, an All-Equity

question 48

Multiple Choice

Galaxy Products is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II) . Under Plan I, the company would have 112,000 shares of stock outstanding. Under Plan II, there would be 75,000 shares of stock outstanding and $600,000 in debt. The interest rate on the debt is 6.7 percent and there are no taxes. What is the break-even EBIT?

• A) $87,879
• B) $121,686
• C) $101,111
• D) $133,333
• E) $91,414

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Definitions:

Sampling Distribution

The layout of statistical probabilities derived from a random sample.

Sample Mean

The average value of a sample set of numbers, calculated by summing all the observations and dividing by the number of observations.

Miller Analogies Test

The Miller Analogies Test is a standardized test used primarily for graduate school admissions, assessing critical thinking and analytical reasoning through analogies.

Variance

A measure of the dispersion or spread of a set of data points around their mean value, indicating how spread out the data points are.