A Firm Is Analyzing Two Possible Capital Structures-30 and 50

question 170

Multiple Choice

A firm is analyzing two possible capital structures-30 and 50 percent debt ratios. The firm has total assets of $5,000,000 and common stock valued at $50 per share. The firm has a marginal tax rate of 40 percent on ordinary income. The number of common shares outstanding for each of the capital structures would be ________.

• A) 30 percent debt ratio: 30,000 shares and 50 percent debt ratio: 50,000 shares
• B) 30 percent debt ratio: 50,000 shares and 50 percent debt ratio: 70,000 shares
• C) 30 percent debt ratio: 70,000 shares and 50 percent debt ratio: 100,000 shares
• D) 30 percent debt ratio: 70,000 shares and 50 percent debt ratio: 50,000 shares

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Definitions:

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