Lowell Corporation and Lawrence Corporation Each Have EBIT of $4

Multiple Choice

Lowell Corporation and Lawrence Corporation each have EBIT of $4 million. Lowell has no debt and no interest expense; Lawrence has $2 million in debt at a before-tax rate of 8%. The tax rate is 40%. How much cash does each firm return to its investors.

A) Lowell $2,400,000, Lawrence $2,144,000
B) Lowell $2,400,000, Lawrence $2,240,000
C) Lowell $2,400,000, Lawrence $2,464,000
D) Lowell $2,400,000, Lawrence $2,304,000