Business, 12.08.2020 06:01 youtubeviewer109

Southland Corporation has a present capital structure consisting of common stock (10 million shares) and debt ($150 million, 8% coupon rate). The company needs to raise $60 million and is undecided between two financing plans. Plan A: Equity financing. Under this plan, an additional common stock will be sold at $15 per share. Plan B: Debt financing. Under this plan, the firm will issue 10% coupon bonds. At what level of operating income (EBIT) will the firm be indifferent between the two plans? Assume a 40% marginal tax rate.

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Southland Corporation has a present capital structure consisting of common stock (10 million shares)...