Ernst Electrical Has 7,500 Shares of Stock Outstanding and No

Multiple Choice

Ernst Electrical has 7,500 shares of stock outstanding and no debt.The new CFO is considering issuing $50,000 of debt and using the proceeds to retire 600 shares of stock.The coupon rate on the debt is 8.5 percent.What is the break-even level of earnings before interest and taxes between these two capital structure options?

A) $48,360
B) $50,020
C) $49,740
D) $52,500
E) $53,125