1) Dagger Company has a current capital structure consisting of $200 million in long-term debt with an interest rate of 6.50% and $400 million in common equity (20 million shares). The firm is considering an expansion plan costing $40 million. The expansion plan can be financed with additional long-term debt at an 8% interest rate or the sale of new common stock at $20 per share. The firms marginal tax rate is 30%. 1. Determine the indifference level of EBIT for the two financing plans. 2. If the firm's actual EBIT is expected to be $50 million, which plan should the firm prefers from EPS perspective?

2) What is the pecking order theory with regard to managerial preferences for financing alternatives?

3) What is the degree of operating leverage for Flippin Out Company, a maker of scuba flippers, if the firm sells its finished product for $30 per unit with variable costs per unit of $6? The company has fixed operating costs of $5,000,000 and sells 1,000,000 units (the answer is rounded).

4) The management of Graphicopy is trying to determine how much debt they should have in their capital structure. If they sell $15,800,000 in perpetual bonds with a 6.5 percent coupon, what would be the present value of the tax shield? Assume the marginal tax rate is 28%.