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Fritz Electric wants to expand into PC repair for manufacturers like Dell and HP. Fritz needs $10 ...

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Fritz Electric wants to expand into PC repair for manufacturers like Dell and HP. Fritz needs $10 ...

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.

Textbook

Corporate Finance Online

Edition: 2^nd

Authors: Eakins, McNally

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