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Neptune Corporation is considering undertaking a new project which involves raising capital of $15,000,000. Debt can be issued at 12%. The new equity shares can
Neptune Corporation is considering undertaking a new project which involves raising capital of $15,000,000. Debt can be issued at 12%. The new equity shares can be issued for $100 per share. There is no preferred stock. Two alternatives are available:
Plan A: Raising the entire amount by equity shares
Plan B: Raising $15,000,000 where 1/2 is debt and 1/2 is equity.
At what level of operating income (EBIT) will the company be indifferent to choose between the two plans to raise capital for their investment? Apply a 21% tax rate.
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