1. A firm is considering two different capital structures. The first option is an all-equity firm with 40,000 shares of stock. The second option is 28,000 shares of stock plus some debt. Ignoring taxes, the break-even level of earnings before interest and taxes between these two options is $52,000. How much money is the firm considering borrowing if the interest rate is 9 percent?
$175,000
$173,333
$208,333
$216,667
$225,000
2. Taunton's is an all-equity firm that has 160,000 shares of stock outstanding. Neal, the financial vice president, is considering borrowing $275,000 at 7.45 percent interest to repurchase 25,000 shares. Ignoring taxes, what is the current value of the firm?
$1,260,000
$1,800,000
$1,485,000
$1,520,000
$1,760,000