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

Multiple Choice

A firm is analyzing two possible capital structures-30 and 50 percent debt ratios. The firm has totalassets of $5,000,000 and common stock valued at $50 per share. The firm has a marginal tax rate of40 percent on ordinary income. The number of common shares outstanding for each of the capital structures would be

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