Crown Data (CD) Has a Current Capital Structure That Consists

question 65

Multiple Choice

Crown Data (CD) has a current capital structure that consists of$120 million in common equity (15 million shares) and $80 million in long-term debt with an average interest rate of 11 percent.CD is considering an expansion project that will cost $22 million.The project will be financed either by issuing long-term debt at a cost of 12.5 percent, or the sale of new common stock at $35 per share.The firm's marginal tax rate is 40%.What is the EBIT indifference point between the two financing options?

• A)$71.5 million
• B)$77.2 million
• C)$68.3 million
• D)$1.0 million

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