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Dagger Company hasa currentcapitalstructure consisting of $100million in long-term debt withaninterest rate of 7.25% and $290million in commonequity(10 millionshares). The firm isconsideringan expansionplancosting $20million.Theexpansion plan

Dagger Company hasa currentcapitalstructure consisting of $100million in long-term debt withaninterest rate of 7.25% and $290million in commonequity(10 millionshares). The firm isconsideringan expansionplancosting $20million.Theexpansion plan can be financedwith additionallong-term debtat an 8.75%interest rateorthesale ofnew common stockat$40pershare. Thefirm's marginal tax rate is 25%.

1. Determine the indifference levelof EBITfor the two financing plans.

2.If the firm's actual EBIT is expected to be $39million, which plan should the firm prefers from EPS perspective?

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