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3. A company is planning the financing of a major expansion. It will use common stock to fund this expansion. The company currently has 300,000
3. A company is planning the financing of a major expansion. It will use common stock to fund this expansion. The company currently has 300,000 shares outstanding selling at an average of $130 per share. The firm needs to raise $5 million. It would sell an additional 50,000 shares to bring in an estimated $5 million needed for the investment. It could alternatively issue $5 million of 10% preferred stock or borrow \$5 million at 9%. The new project is expected to raise EBIT by 18% when implemented. The company's capital structure contains long-term debt of $10 million which pays interest of 11%. Current Income Statement How much must the firm earn before taxes to be able to pay for each method of financing if that method were used
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