NARRBEGIN: Kennesaw Steel Corp

question 21

Multiple Choice

NARRBEGIN: Kennesaw Steel Corp.
Kennesaw Steel Corporation
As Chief Financial Officer of the Kennesaw Steel Corporation (KSC) ,you are considering a recapitalization plan that would convert KSC from its current all-equity capital structure to one including substantial financial leverage.KSC now has 100,000 shares of common stock outstanding,which are selling for $50.00 each,and the recapitalization proposal is to issue $2,000,000 worth of long-term debt at an interest rate of 8.0 percent and use the proceeds to repurchase $2,000,000 of common stock.
-Refer to Kennesaw Steel Corporation.The tax rate is 40%.What level of EBIT will earnings per share equal zero for shareholders under the new capital structure? (assume that the stock can be repurchased at $50 per share)

• A) $0
• B) $60,000
• C) $120,000
• D) $160,000

---

Definitions:

Maturation

The process by which an individual matures or reaches full functionality, often seen as the natural growth and development that is genetically determined.

Development

The process of growth or progress, often involving changes in physical, cognitive, or emotional capacities over time.

Alcoholic

A person who suffers from alcoholism, which is an addiction to the consumption of alcoholic liquor or the mental illness and compulsive behavior resulting from alcohol dependency.

Retarded Development

Retarded development refers to significantly delayed physical or mental growth and development, potentially due to genetic, environmental, or other factors.