Use the information for the question(s) below.
You own your own firm and you need to raise $50 million to fund an expansion. Following the expansion, your firm will be worth $75 million in its unlevered form. You want to go ahead with the expansion, but you are concerned that you may not be able to maintain ownership of over 50% of your firm's equity. In other words, you are concerned that if you use equity to finance the expansion, you may lose control of your firm.
-Assume that capital markets are perfect except for the existence of corporate taxes and that your firm pays 40% of earnings in taxes.If you want to maintain ownership of at least 50% of your firm,then the minimum amount of debt that you must issue to fund the expansion is closest to:
A) $19 million
B) $18 million
C) $16 million
D) $20 million
Correct Answer:
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