What is the preferred method of raising new capital

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Belém Company has 4 million shares of common stock selling at $17 each. It also has $26 million in bonds with coupon rate of 9%, selling at par. Belém needs $10 million in new capital, which it can raise by selling stock at $15, or bonds at 10% interest. The expected EBIT after the new capitalization is $8 million, with a standard deviation of $4 million. What is the preferred method of raising new capital? What is the probability that you are right?

Reference no: EM13925311

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