Ernst Electrical Has 9,000 Shares of Stock Outstanding and No

Multiple Choice

Ernst Electrical has 9,000 shares of stock outstanding and no debt.The new CFO is considering issuing $80,000 of debt and using the proceeds to retire 1,500 shares of stock.The coupon rate on the debt is 7.5 percent.What is the break-even level of earnings before interest and taxes between these two capital structure options?

A) $18,500
B) $21,000
C) $24,000
D) $32,500
E) $36,000