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problem: Moon and Chittenden are considering a new Online Internet venture to sell used textbooks. The project requires dollar 300,000 in Financing. Two options have been proposed:

1st Plan (Common equity financing); Sell 30,000 shares of stock at a net price of $10 per share.

2nd Plan (Debt equity financing); Sell a combination of 15,000 shares of stock at a net price of $10 per share and $150,000 of long-term debt at a pretax interest rate of 12 percent.

Suppose the corporate tax rate is 40%. find out the indifference level of EBIT between these two options.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M921351

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