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Kevin Corp. has the following capital structure: 30 million shares of common stock and $150 million debt with an interest rate of 10%. The firms
Kevin Corp. has the following capital structure: 30 million shares of common stock and $150 million debt with an interest rate of 10%. The firms marginal tax rate is 40%. The company is planning an expansion and has two alternative financing plans: Plan 1: Common equity financing. An additional 3 million shares of common stock will be sold at $10 each. Plan 2: Debt financing. The firm would sell $30 million of bonds with a pretax cost of 14 percent. What is Kevins indifference point between these two alternatives?
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