Katlin Markets is debating between a levered and an unlevered capital structure. The all-equity capital structure would consist of 60,000 shares of stock. The debt and equity option would consist of 45,000 shares of stock plus $250,000 of debt with an interest rate of 7.25 percent. What is the break-even level of earnings before interest and taxes between these two options? Ignore taxes.
A) $50,500
B) $68,200
C) $81,400
D) $66,667
E) $72,500

Question

Quizplus · Accepted Answer

The Answer of Katlin Markets is debating between a levered and an unlevered capital structure. The all-equity capital structure would consist of 60,000 shares of stock. The debt and equity option would consist of 45,000 shares of stock plus $250,000 of debt with an interest rate of 7.25 percent. What is the break-even level of earnings before interest and taxes between these two options? Ignore taxes.
A) $50,500
B) $68,200
C) $81,400
D) $66,667
E) $72,500

Katlin Markets Is Debating Between a Levered and an Unlevered