Question: ABC Ltd. is considering two capital structures as options to finance its operations. The first option consists of all equity financing. The second option is

ABC Ltd. is considering two capital structures as options to finance its operations. The first option consists of all equity financing. The second option is based on a debt-equity ratio of 0.3. What should ABC Ltd. do if its expected earnings before interest and taxes (EBIT) are less than the break-even level? Assume there are no taxes.

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