Question 27 (2 points)
VP Estates requires $500,000 for a new project. They currently have 100,000
common shares outstanding and $100,000 in interest ($2 million in bonds at 5%
coupon). The company can raise the funds by:
Option #1 - issue common shares at $10 each
Option #2 - issue bonds with a 7% coupon
The indifference EBIT (EBIT*) is:
$205,000
$105,000
$95,000
$1,150,000