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magine a world with perfect certainty, no costs of financial distress and where the corporate tax rate is 2 0 % . Epsilon LTD has

magine a world with perfect certainty, no costs of financial distress and where the corporate tax rate is 20%. Epsilon LTD has annual earnings before interest and taxes (EBIT) of 1,000. Interest rates on its debt are 5% and will be so forever. How much debt and equity (in ) should it have if it wanted to achieve its optimal capital structure?

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