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Your firms balance sheet last year showed $1,000 of debt and $1,000 of equity. You wish to maintain a constant debt-to-equity ratio every year. Over

Your firms balance sheet last year showed $1,000 of debt and $1,000 of equity. You wish to maintain a constant debt-to-equity ratio every year. Over the last year, your firms EBIT is $800 and the cost of debt is 5%. Your firm also has a 10% dividend payout ratio and the corporate tax rate is 34%. a) How much debt should your firm issue?

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