A Firm Has a Projected EBIT of $20,000 for a New

question 67

Multiple Choice

A firm has a projected EBIT of $20,000 for a new project.The funds needed for the project are $40,000.The firm can finance the project completely with debt at a pre-tax interest cost of 10%.Alternatively,the firm could finance the project with equity by selling stock at $5 per share.If there are 500,000 shares outstanding and the firm's tax rate is 40%,what is the EBIT-EPS indifference point?

• A) $254,000
• B) $504,000
• C) $40,000
• D) $20,000
• E) $500,000

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