Midwest Can Company Is Considering Opening a New Plant in St

question 56

Multiple Choice

Midwest Can Company is considering opening a new plant in St. Louis that is expected to produce an average EBIT of $3 million per year. To finance this new plant, Midwest is considering two financing plans. The first plan is to sell 600,000 shares of common stock at $15 each. The second plan is to sell 200,000 shares of common stock at $15 each and $6 million of 13% long-term debt. Assuming Midwest has a marginal tax rate of 40%, what is the EBIT-EPS indifference point for this plant?

• A) $702,000
• B) $234,000
• C) $2,234,000
• D) $1,170,000

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