The Question.

Formulas to use.

The KoSol Co. can raise $200,000 by (1) selling 1,000 shares of common stock at $200 each or (2) selling new bonds that will net the firm $200,000 and carry an interest rate of 9 percent. Currently, the firm has $200,000 of debt at 7% and 2,000 common stock outstanding. If the firm's tax rate is 25 percent, what is the indifferent EBIT (EBIT)? . rrr + (rm-rf) * b Po = D/(r-g) = D.*(1+g)/(r-g) r= D/P, +g WACC = (D/T.A.) * Ka * (1-T) + (E/T.A.) * Ke (D/T.A.) + (E/T.A.) = 1 I EPSD = {(EBIT-(Cur+New int))*(1-T) /# of Cur Shares EPSE = (EBIT-Cur int) *(1-T) / # of cur +new Shares