Question: Moon and Chittenden are considering a new Online Internet venture to sell used textbooks. The project requires dollar 300,000 in Financing. Two options have been proposed:
1st Plan (Common equity financing); Sell 30,000 shares of stock at a net price of $10 per share.
2nd Plan (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 percent.
Suppose the corporate tax rate is 40%. Calculate the indifference level of EBIT between these two options.