Compute the ebit-eps indifference point

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Tiger Woods and Lumber has a capital structure of 10 million shares of common stock, $200 million of first-mortgage bonds with a coupon rate of 13%, and $40 million of preferred stock paying a 5% dividend. TWL would like to raise $200 million for expansion. This expansion can be financed either by selling 4 million new shares of common stock at a price of $50 per share or by the sale of $200 million of subordinated debt at a pretax interest rate of 15%. The company's tax rate is 40%. Compute the EBIT/EPS indifference point.

Reference no: EM133119254

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