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22 June, 02:20

Northwestern Lumber Products currently has 17,500 shares of stock outstanding. Patricia, the financial manager, is considering issuing $135,000 of debt at an interest rate of 6.6 percent. Given this, how many shares of stock will be outstanding once the debt is issued if the break-even level of EBIT between these two capital structure options is $65,000?

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  1. 22 June, 03:09
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    15,101.15 shares

    Explanation:

    Northwestern Lumber products has = 17,500 shares of stock

    The Manager Patricia considers issuing $135,000 of debt, at an interest rate of 6.6%

    Let us find how many shares of stock will be outstanding once the debt is issued,

    Given that

    $65,000/17,500 = ($65,000 - 135,000 (.066)) / X

    Then X = 15,101.15 shares
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