Alace Is an All-Equity Firm with 10 Million Shares Outstanding

Multiple Choice

Alace is an all-equity firm with 10 million shares outstanding and is evaluating two alternative financing plans. With the first plan, Alace will sell 1 million shares of common stock at $15 each. Under the second plan, the firm would sell $15 million of 12% long-term debt. If Alace has a marginal tax rate of 35%, what is the EBIT-EPS indifference point?

A) $12.9 million
B) $19.8 million
C) $11.7 million
D) $18.0 million