Problem:
Kelso Electric is debating between a leveraged and an unleveraged capital structure. The all equity capital structure would consist of 21,000 shares of stock. The debt and equity option would consist of 13,000 shares of stock plus $260,000 of debt with an interest rate of 6 percent.
Required:
Question: What is the break-even level of earnings before interest and taxes between these two options?
- $22,113.00
- $24,570.00
- $17,199.00
- $40,950.00
- $19,656.00
Note: Please show how you came up with the solution.