Dagger Company Has a Current Capital Structure Consisting of $60

question 53

Multiple Choice

Dagger Company has a current capital structure consisting of $60 million in long-term debt with an interest rate of 9% and $60 million in common equity (12 million shares) . The firm is considering an expansion plan costing $23 million. The expansion plan can be financed with additional long-term debt at a 12% interest rate or the sale of new common stock at $8 per share. The firm's marginal tax rate is 40%. Determine the indifference level of EBIT for the two financing plans.

• A) -$30.24 million
• B) $18.36 million
• C) $30.24 million
• D) $19.68 million

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Definitions:

ES

Enterprise Systems, large-scale software packages that support business processes, information flows, reporting, and data analytics in complex organizations.

DSS

Decision Support System, a computerized program used to support decision-making activities in an organization.

Batch Processing

Transaction processing system (TPS) that processes data in batches at fixed periodic intervals.

OLAP

Online Analytical Processing, a category of software tools that provide analysis of data stored in a database for complex queries and analyses.