Question: Mr. Brew Cafeteria has computed the indifference point between debt and common equity financing options to be $4 millions of EBIT. EBIT is approximately normally

Mr. Brew Cafeteria has computed the indifference point between debt and common equity financing options to be $4 millions of EBIT. EBIT is approximately normally distributed with an expected value of $4.5 million and a standard deviation of $600,000. What is the probability that the equity financing option will be superior to the debt option?

Hint: remember that equity financing is preferred when EBIT is below the indifference point.

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