GTB, Inc., has a 20 percent tax rate and has $85,656,000 inassets, currently financed entirely with equity. Equity is worth $6per share, and book value of equity is equal to market value ofequity. Also, let’s assume that the firm’s expected values for EBITdepend upon which state of the economy occurs this year, with thepossible values of EBIT and their associated probabilities as shownbelow:
State Pessimistic Optimistic
Probability of state 0.44 0.56
Expected EBIT in state $ 4.90 million $ 18.90 million
The firm is considering switching to a 25-percent-debt capitalstructure, and has determined that it would have to pay a 10percent yield on perpetual debt in either event.
What will be the break-even level of EBIT? (Enter your answer indollars, not in millions. Do not round intermediate calculationsand round your final answer to the nearest whole dollaramount.)
EBIT $ 8,565,600.
