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Capital structure for red world

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Red World generates EBIT of £200 million. It currently does not have debt in the capital structure, but it is considering the use of debt and exploring raising either £700 million or £1,500 million. Interest on debt is payable at the rate of 6%. Ignoring taxation and bankruptcy costs and assuming all earnings after interest are paid to shareholders as dividends, which is the most attractive capital structure for Red World? Explain.

Reference no: EM132769646

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