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On-the-Fence Co. (OTF) is considering issuing an additional $5,000,000 of debt. It is subject to a 25% corporate tax rate and estimates that the present

On-the-Fence Co. (OTF) is considering issuing an additional $5,000,000 of debt. It is subject to a 25% corporate tax rate and estimates that the present value of bankruptcy costs that would result from the new issue would be $1,500,000. What should OTF do? Assume there are no personal taxes.

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