Dippity Doodle Noodle Makers Has a Capital Structure That Consists

question 58

Multiple Choice

Dippity Doodle Noodle Makers has a capital structure that consists of 2.0 million shares outstanding and $2.0 million of debt at 8% interest. The company is planning a major plant expansion and must decide between the following two financing plans. Option 1 is to increase debt by $1.0 million at 9% interest and sell 10,000 new shares of stock at $50 per share. Option 2 is to sell 30,000 new shares of stock at $50 per share. What would be the indifference point and, considering that EBIT is expected to be $10,000,000, which option would be best?

• A) Indifference of $10,750,000; use stock option.
• B) Indifference of $1,600,000; use stock option.
• C) Indifference of $16,270,000; use the debt option.
• D) Indifference of $9,250,000; use the debt option.

---

Definitions:

Bill of Lading

A legal document issued by a carrier to a shipper, detailing the type, quantity, and destination of the goods being carried.

Shipper and Carrier

A shipper is a person or company sending goods; a carrier is the party responsible for the transport of those goods.

Contract

A legally binding agreement between two or more parties that is enforceable by law.

Environmental Performance

Refers to an organization’s impact on the environment, including the ways in which it manages resources and waste to mitigate harmful effects.