Midwest Can Company Is Considering Opening a New Plant in St.Louis

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 percent long-term debt.If Midwest has a marginal tax rate of 40 percent, what is the EBIT-EPS indifference point for this plant?

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