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A company has 10,000,000 outstanding shares and no debt. It has a choice between financing a new project by issuing 2,000,000 common shares that will
A company has 10,000,000 outstanding shares and no debt.
It has a choice between financing a new project by issuing 2,000,000 common shares that will sell for $15 each, or by issuing 2,000,000 preferred shares valued at $15 each that pay a dividend of $1.5 per share annually.
The company's tax rate is 35%.
At what level of earnings before interest and taxes (EBIT) is the company indifferent between the two financing choices?
It has a choice between financing a new project by issuing 2,000,000 common shares that will sell for $15 each, or by issuing 2,000,000 preferred shares valued at $15 each that pay a dividend of $1.5 per share annually.
The company's tax rate is 35%.
At what level of earnings before interest and taxes (EBIT) is the company indifferent between the two financing choices?
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Foundations of Financial Management
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
10th Canadian edition
1259261018, 1259261015, 978-1259024979
