Question
Hades Furnace has a current, optimal capital structure of 20% debt and 80% equity. Hades can borrow up to $20 million at a 9% rate,
Hades Furnace has a current, optimal capital structure of 20% debt and 80% equity. Hades can borrow up to $20 million at a 9% rate, an additional $10 million at an 11% rate, and any additional funds at a rate of 13%. The firm expects to retain $60 million of its earnings and can raise additional funds by issuing new common stock. The firms common stock currently trades at $30.50. The last dividend paid was $3.20 and dividends are expected to grow at a 4% rate. If Hades issues new common stock, it will be priced at $27.50 per share and the investment bankers fee will be $0.50 per share. If Hades marginal tax rate is 40%, determine its equity breakpoint.
Question 2 options:
| $60m |
| $75m |
| There is no equity breakpoint |
| There is not enough information to answer the question |
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