Marcus Owns and Manages OLK,which Is an All-Equity Firm

Multiple Choice

Marcus owns and manages OLK,which is an all-equity firm.If he works 40 hours a week,the firm's annual EBIT will be $96,000.If he increases his hours to 45 a week,EBIT will increase to $108,000.The firm has a current value of $926,000.Marcus needs $250,000 to fund a new project.The firm can borrow the needed funds at an interest rate of 6 percent,or it can issue equity.Ignore taxes.Marcus will prefer

A) debt with a 40-hour week as that option provides him with the highest cash flow.
B) debt with a 45-hour week as his cash flow will be $11,000 greater than his next best option.
C) equity with a 45-hour week as his cash flow will be $85,041.
D) equity with a 40-hour week as that option provides him with the lowest cash flow.
E) debt with a 45-hour week as his cash flow will be $7,959 higher than if he works 45 hours and shares his equity.