The Ames Company Has an Expected EBIT of $16 Million

Multiple Choice

The Ames Company has an expected EBIT of $16 million with a standard deviation of $8 million. The indifference point between a debt financing alternative and a common stock financing alternative was computed to be $12 million. Determine the probability that the equity financing alternative will be superior to the debt financing alternative (i.e., have a higher EPS) . (Problem requires normal distribution table.)

A) 50.0%
B) 30.85%
C) 69.15%
D) cannot be computed