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Lotus Inc. is a publicly traded company with 50 million shares outstanding. Its current share price is $16.4 per share. The company also has $200 million debt with 4% interest rate charged by the lender. The management is considering two financing alternatives to raise $200 million from capital markets for the development of a new drug. Under Option A, they will sell new shares at the current stock price; under Option B, they will borrow at the current cost of debt. The company’s marginal tax rate is 45%.

What is the EBIT-EPS indifference level?

if the management expects an EBIT of $30, which option should they select to maximize EPS?

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