Sulzar's Capital Structure Consists Only of Common Stock (20 Million

Multiple Choice

Sulzar's capital structure consists only of common stock (20 million shares) , but the firm is planning a major expansion, which will require $100 million of new capital. Sulzar has a choice of obtaining the needed capital through the sale of 5 million shares of common stock at $20 per share or the sale of $100 million of first mortgage bonds that would have a coupon rate of 9%. Assuming Sulzar has a marginal tax rate of 40%, calculate the EBIT-EPS indifference point.

A) $45 million
B) $36 million
C) $5 million
D) $9 million