A Winnipeg Firm Is Considering Two Separate Capital Structures

question 263

Multiple Choice

A Winnipeg firm is considering two separate capital structures. The first is an all equity plan consisting of 25,000 shares of stock. The second plan would consist of 10,000 shares of stock and $90,000 in debt at a cost of 8%. Ignore taxes. What is the break-even EBIT?

• A) $12,000
• B) $15,000
• C) $18,000
• D) $19,000
• E) $21,000

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Definitions:

Reconciling Information

The process of ensuring that two sets of records or reports (usually financial) are in agreement and accurate.

October Bank Reconciliation

The process of comparing and adjusting the balance of an entity's accounting records for October with the balance reported by the bank.

Cash Balance Per Books

The amount of cash shown in a company’s financial records at a specific point in time, which may differ from the actual cash balance due to outstanding transactions.

Petty Cash Fund

A small amount of cash kept on hand for covering minor and incidental expenses in a business, managed through a petty cash system.