Allison Engines Corporation Has Established a Target Capital Structure of 40

Multiple Choice

Allison Engines Corporation has established a target capital structure of 40 percent debt and 60 percent common equity. The firm expects to earn $150,000 in after-tax income during the coming year, and it will retain 40 percent of those earnings. What is the break point of retained earnings?

A) $125,000
B) $100,000
C) $150,000
D) $110,000
E) $135,000