Question
Maersk is a publicly traded shipping company with 70 million shares outstanding. Its current share price is $15 per share. The company also has $400
Maersk is a publicly traded shipping company with 70 million shares outstanding. Its current share price is $15 per share. The company also has $400 million debt with 4% interest rate charged by the lender. The management is considering two financing alternatives to raise $105 million from capital markets for the development of a new shipping terminal in Rotterdam. Under Option A, they will sell new shares at the current stock price; under Option B, they will borrow at the 4.762%. The company's marginal tax rate is 40% and their WACC is 12%. At what EBIT will Maersk be indifferent between Option A and B?
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