Consider a firm with an EBIT of $$860,000.$ The firm finances its assets with $$2,600,000$ debt $($costing $7\mathrm{.}4$ percent and is all tax deductible$)$ and $500,000$ shares of stock selling at $$5\mathrm{.}00$ per share. To reduce the firm's risk associated with this financial leverage, the firm is considering reducing its debt by $$1,000,000$ by selling an additional $300,000$ shares of stock. The firm's tax rate is $21$ percent. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $$860,000.$