Crown Data(CD) Has a Current Capital Structure That Consists of $120

question 68

Multiple Choice

Crown Data(CD) has a current capital structure that consists of $120 million in common equity (15 million shares) and $80 million in long-term debt with an average interest rate of 11%. CD is considering an expansion project that will cost $22 million. The project will be financed either by issuing long-term debt at a cost of 12.5%, or the sale of new common stock at $35 per share. The firm's marginal tax rate is 40%. What is the EBIT indifference point between the two financing options?

• A) $71.5 million
• B) $77.2 million
• C) $68.3 million
• D) $1.0 million