The Albany Corporation Has a Present Capital Structure Consisting of Common

Multiple Choice

The Albany Corporation has a present capital structure consisting of common stock ($200 million, 10 million shares) and debt ($150 million, 8%) . The company is planning a major expansion and is undecided between two financing plans. Plan A: Equity financing. Under this plan, an additional 2.5 million shares of common stock will be sold at $ 15 each.
Plan B: Debt financing. Under this plan, $37.5 million of 10% long-term debt will be sold.
What is the EBIT-EPS indifference point? Assume a 40 percent marginal tax rate.

A) $33.9 million
B) $30.75 million
C) $37.0 million
D) $12.9 million