Midwest Can Company Is Considering Opening a New Plant in St

Multiple Choice

Midwest Can Company is considering opening a new plant in St. Louis that is expected to produce an average EBIT of $3 million per year. To finance this new plant, Midwest is considering two financing plans. The first plan is to sell 600,000 shares of common stock at $15 each. The second plan is to sell 200,000 shares of common stock at $15 each and $6 million of 13% long-term debt. Assuming Midwest has a marginal tax rate of 40%, what is the EBIT-EPS indifference point for this plant?

A) $702,000
B) $234,000
C) $2,234,000
D) $1,170,000