Question
Please help fast - Tortuga, Inc. is looking to raise $2 million for new equipment to enhance the efficiency of its operations. The firm currently
Please help fast - Tortuga, Inc. is looking to raise $2 million for new equipment to enhance the efficiency of its operations. The firm currently is capitalized with 100,000 shares of equity at a market price of $42 per share and also has $1,000,000 of debt with an interest rate of 8%. The company believes that with the new capital they could achieve an EBIT of $500,000. Assume new equity could be issued at current market price and that new debt would still carry a 8% coupon. The company has a 25% marginal tax rate. At what level of EBIT would Tortuga be indifferent between financing the project with Equity or Debt?
$752,000 |
$985,400 |
$1,327,500 |
$576,000 |
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