Essay
Premium Lodging,Inc.,is financed entirely with 3 million shares of common stock selling for $50 a share.Capital of $10 million is needed for this year's capital budget.Additional funds can be raised with new stock (ignore dilution)or with 11 percent 12-year bonds.Premium Lodging's tax rate is 35 percent. a.Calculate the financing plan's EBIT indifference point.
b. The expected level of EBIT is $10,320,000 with a standard deviation of $2,000,000. What is the probability that EBIT will be above the indifference point?
c. Does the "indifference point" calculated in question (a) above truly represent a point where stockholders are indifferent between stock and debt financing? Explain your answer.
Correct Answer:
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a. 
EBIT = $17,600,000 is the ...View Answer
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Correct Answer:
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EBIT = $17,600,000 is the ...View Answer
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