Question: The Fast-Track Co. has thus far only used equity to finance its operations and currently has 1,000,000 shares outstanding with an EBIT of $1,500,000. The

The Fast-Track Co. has thus far only used equity to finance its operations and currently has 1,000,000 shares outstanding with an EBIT of $1,500,000. The newly-hired CFO firmly believes that the firm would benefit its shareholders a great deal by issuing $10,000,000 of debt at the rate of 10% per year and buying back 400,000 shares. If interest is tax-deductible, the firm is being charged a rate of 10% interest on borrowed funds, and the firm is in a 35% tax bracket, is the new CEO correct?

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Interest on 10000000 of debt would be110000000 1000000 Indifference EBIT EBIT1351... View full answer

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