A Firm Is Considering Two Different Capital Structures

question 94

Multiple Choice

A firm is considering two different capital structures.The first option is an all-equity firm with 32,000 shares of stock.The second option is 20,000 shares of stock plus some debt.Ignoring taxes,the break-even level of earnings before interest and taxes between these two options is $48,000.How much money is the firm considering borrowing if the interest rate is 8 percent?

• A)$175,000
• B)$225,000
• C)$250,000
• D)$275,000
• E)$300,000