Northwestern Lumber Products Currently Has 12,400 Shares of Stock Outstanding

question 76

Multiple Choice

Northwestern Lumber Products currently has 12,400 shares of stock outstanding and no debt.Patricia, the financial manager, is considering issuing $160,000 of debt at an interest rate of 6.95 percent and using the proceeds to repurchase shares.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 $48,000? Ignore taxes.

• A)2,873 shares
• B)3,051 shares
• C)3,025 shares
• D)2,558 shares
• E)2,667 shares

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Definitions:

Marginal Tax Rate

The rate at which the last dollar of income is taxed, indicating the percentage of tax applied to your income for each tax bracket in which you qualify.

Taxable Income

Taxable income is the portion of an individual's or company's income used as the basis to calculate the taxes owed to the government.

Average Tax Rate

The ratio of the total amount of taxes paid to the total taxable income, indicating the portion of income that is paid in taxes.

Marginal Tax Rate

The tax rate that applies to the last dollar of the taxpayer's income, indicating the percentage of tax paid on any additional income earned.