Fritz Electric wants to expand into PC repair for manufacturers ...

[burton19126]

Fritz Electric wants to expand into PC repair for manufacturers like Dell and HP. Fritz needs $10 million to build the repair depot. Fritz has been approached by two investment bankers with plans for financing the business: one is an all equity plan and the other is an equal mix of debt and equity. Fritz has drawn an EPS-EBIT diagram to help choose between the two alternatives. If the expected EBIT is greater than the indifferent point value, which capital structure would Fritz's shareholders prefer?
◦ All equity
◦ 50% debt/50% equity
◦ They are the same at the indifference point.

[cici]

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[Arnold Simmons]

Thank you!