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Chair company is expanding to including a new product line. New financing in the amount of $900 000 is required. EBIT is expected to be

  1. Chair company is expanding to including a new product line. New financing in the amount of $900 000 is required. EBIT is expected to be $300 000 after expansion. Currently, the company has interest expense of $75 000 and it has 50 000 common shares. The companys tax rate is 35%. Three financing plans are being considered:
  • PLAN A: all debt financing. Interest rate would be 8%.
  • PLAN B: all equity financing. Common stock can be sold at $30 per share
  • PLAN C: 50% equity financing (at $30 per share) and 50% debt (at 8%)

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