Question
Allegra Inc. has one million shares outstanding. The company is considering the issue of debt of $15 million. The interest rate on this new debt
Allegra Inc. has one million shares outstanding. The company is considering the issue of debt of $15 million. The interest rate on this new debt issue will be 8%, and the number of shares after the debt issue will be reduced to 500,000. Given a corporate tax rate of 40%, what is the EBIT that will cause the firm's earnings per share to be indifferent between issuing and not issuing debt?
a). $1,200,000
b). $1,800,000
c). $2,400,000
d). $3,000,000
e). $3,600,000
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Principles of Corporate Finance
Authors: Richard A. Brealey, Stewart C. Myers
7th edition
72869461, 72467665, 9780072467666, 978-0072869460
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