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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Definitions:

Flexible Budget

A budget designed to adapt to changes in activity or volume levels, ensuring more accurate budgeting and variance assessments.

Meals Served

The total number of meals prepared and provided to customers or clients over a specific period.

Kitchen Operations

The range of activities involved in the running and management of a kitchen, including meal preparation, cooking, and cleaning.

Activity Measure

A metric used to represent the amount of work done or efficiency, often used in costing and productivity analysis.