Determine the indifference level of ebit

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Reference no: EM1316316

Compute the indifference level of EBIT.

Moon and Chittenden are considering a new Internet venture to sell used textbooks. The project requires $300,000 in Financing. Two alternatives have been proposed:

Plan 1 (Common equity financing). Sell 30,000 shares of stock at a net price of $10 per share.
Plan 2 (Debt equity financing). Sell a combination of 15,000 shares of stock at a net price of $10 per share and $150,000 of long-term debt at a pretax interest rate of 12%.

Assume the corporate tax rate is 40%.

Compute the indifference level of EBIT between these two alternatives.

Reference no: EM1316316

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