Question: Morton Company is considering opening a new subsidiary in Boston, to b operated as a separate firm. The firm's financial analysts expect the company is considering the following two (2) financing plans. Suppose marginal tax rate is 40%.
1st Plan [Equity financing]; Under this plan, 2 million common shares will be sold at $10 each.
2nd Plan [Debt equity financing]; Under this plan, $10 million of 12 percent long-term debt and 1 million common shares at $10 each will be sold.
Determine what factors should the company consider in deciding which financing plan to adopt?