MC Qu. 54 Kelso Electric is debating between a leveraged and an unleveraged capi
ID: 2645219 • Letter: M
Question
MC Qu. 54 Kelso Electric is debating between a leveraged and an unleveraged capital structure....
Kelso Electric is debating between a leveraged and an unleveraged capital structure. The all equity capital structure would consist of 31,000 shares of stock. The debt and equity option would consist of 17,000 shares of stock plus $250,000 of debt with an interest rate of 6 percent. What is the break-even level of earnings before interest and taxes between these two options? Ignore taxes. (Please note that because of rounding you will not get the exact answer).
$15,942.86 $17,935.71 $19,928.57 $33,214.29 $13,950.00Explanation / Answer
Below equation will be set up to find BEP EBIT level:
X/31000 = (X - 250000*.06)/17000
X = 33214.28
Correct option:
$33,214.29
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