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Question
Use the following information to answer the following question(s).Your firm is trying to determine whether it should finance a project requiring $800,000 with new common stock or with debt. The firm is faced with the following financing alternatives:
I: Issue new common stock. Sale price of the common stock is expected to be $40 per share.
II: Issue new bonds with a coupon rate of 12%.
The firm has a marginal tax rate of 34%, the company currently has 40,000 shares of common stock outstanding, and $90,000 face value of 10% debt outstanding.
The indifference level of EBIT is:
A) $99,000.
B) $66,600.
C) $333,000.
D) $297,000.
Answer
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