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