Kelso Electric Is Debating Between a Leveraged and an Unleveraged

question 85

Multiple Choice

Kelso Electric is debating between a leveraged and an unleveraged 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 $280,000 of debt with an interest rate of 7 percent.What is the break-even level of earnings before interest and taxes between these two options? Ignore taxes.

• A)$42,208
• B)$44,141
• C)$46,333
• D)$49,667
• E)$52,267

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