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An existing firm is unlevered and has 100,000 shares of stock outstanding at a market price of $20 per share.

An existing firm is unlevered and has 100,000 shares of stock outstanding at a market price of $20 per share. The new structure would include $100,000 of debt with a coupon rate (interest rate) of 10 percent. All of the money raised from the debt issue would be used to repurchase stock. What is the break-even level of EBIT between the two structures? Ignore taxes.


$140,000

$200,000

$208,000

$350,000

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