Question

Northwestern Lumber Products currently has 17,500 shares of stock outstanding. Patricia, the financial manager, is considering issuing $135,000 of debt at an interest rate of 6.6 percent. Given this, how many shares of stock will be outstanding once the debt is issued if the break-even level of EBIT between these two capital structure options is $65,000?

Answer 1

Answer:

15,101.15 shares

Explanation:

Northwestern Lumber products has =17,500 shares of stock

The Manager Patricia considers issuing  $135,000 of debt, at an interest rate of 6.6%

Let us find how many shares of stock will be outstanding once the debt is issued,

Given that

$65,000/17,500 =  ($65,000 − 135,000(.066))/X

Then X = 15,101.15 shares