Robert Financing has two competing financing alternatives The Company Corp. A. Issue $ 5 million in common
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Question:
Robert Financing has two competing financing alternatives The Company Corp.
A. Issue $ 5 million in common stock at $ 50 per share
B. Issuing a straight bond at par value for the same amount as in B with a coupon rate of 10%
C. The Company's marginal tax rate is 30%
D. The Company currently has 10 million shares of common stock outstanding Required: a. Which of the two financing options is better?
Support your recommendation with numbers b. At what EBIT* level Robert should be indifferent between the two alternatives? (Hint: level of EBIT* is equal of level of equilibrium of the two alternatives)
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