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 30 percent of those earnings. What is the break point of retained earnings?

A) $175,000
B) $75,000
C) $112,500
D) $500,000
E) $250,000