OldeTowne Industries Is Considering Both an All Equity and a Debt-Equity

question 188

Multiple Choice

OldeTowne Industries is considering both an all equity and a debt-equity capital structure. The all equity capital structure would consist of 40,000 shares of stock. The debt and equity option would
Consist of 25,000 shares of stock plus $300,000 of debt at an interest rate of 8%. What is the
Break-even level of earnings before interest and taxes between these two options? Ignore taxes.

• A) $52,000
• B) $57,000
• C) $64,000
• D) $66,000
• E) $74,000

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