Damilola owns and manages a small all-equity firm. If she works 40 hours a week, the firm's annual EBIT will be $53,000. If she increases her hours to 45 a week, EBIT will increase to $61,000. The firm has a current value of $314,000. Damilola wants to expand the business and needs $85,000 to do so. The firm can borrow the needed funds at an interest rate of 7.6 percent, or it can issue equity. Ignore taxes. Damilola would prefer Multiple Choice equity with a 45-hour week as her cash flow will be more than $2,000 higher than her next best option. debt with a 40-hour week as that option provides her with the highest cash flow. equity with a 45-hour week as her cash flow will be more than $6,000 greater than her next best option. debt with a 45-hour week as her cash flow will be more than $6,000 greater than her next best option. equity with a 40-hour week as that option provides her with the highest cash flow.
F4
Damilola owns and manages a small all-equity firm. If she works 40 hours a week, the firm's annual EBIT will be $53,000. If she increases her hours to 45 a week, EBIT will increase to $61,000. The firm has a current value of $314,000. Damilola wants to expand the business and needs $85,000 to do so. The firm can borrow the needed funds at an interest rate of 7.6 percent, or it can issue equity. Ignore taxes. Damilola would prefer Multiple Choice equity with a 45-hour week as her cash flow will be more than $2,000 higher than her next best option. debt with a 40-hour week as that option provides her with the highest cash flow. equity with a 45-hour week as her cash flow will be more than $6,000 greater than her next best option. debt with a 45-hour week as her cash flow will be more than $6,000 greater than her next best option. equity with a 40-hour week as that option provides her with the highest cash flow.
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