An Unlevered fiRm with a Market Value of $1 Million

Multiple Choice

An unlevered firm with a market value of $1 million has 50,000 shares outstanding. The firm restructures itself by issuing 200 new bonds with face value $1,000 and an 8% coupon. The firm
Uses the proceeds to repurchase outstanding stock. In considering the newly levered versus
Formerly unlevered firm, what is the break-even EBIT? Ignore taxes.

A) $25,000
B) $50,000
C) $75,000
D) $80,000
E) $95,000