Question
A company is attempting to select between two financing alternatives. Option 1 is to issue an additional $1 million in debt at 8%. The second
A company is attempting to select between two financing alternatives. Option 1 is to issue an additional $1 million in debt at 8%. The second option is to issue $1 million o common shares at $25/share. The firm currently has $250,000 of 7% debt and 100,000 shares of common outstanding. Its tax rate is 40%.
a. What is the indifference point?
b. Which option would you choose if the EBIT is projected to be $100,000?
c. Which option would you choose if the EBIT is projected to be $350,000?
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The Oxford Handbook Of Entrepreneurial Finance
Authors: Douglas Cumming
1st Edition
0195391241, 978-0195391244
