Room and Board Has Determined That $36,000 Is the Break-Even

question 25

Multiple Choice

Room and Board has determined that $36,000 is the break-even level of earnings before interest and taxes for the two capital structures it is considering.The one structure consists of all equity with 14,000 shares of stock.The second structure consists of 10,000 shares of stock and $80,000 of debt.What is the interest rate on the debt?

• A)7.72 percent
• B)8.19 percent
• C)9.97 percent
• D)11.43 percent
• E)12.86 percent

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