ABC Ltd. is considering two capital structures as options to finance its operations. The first option consists of all equity financing. The second option is based on a debt-equity ratio of 0.3. What should ABC Ltd. do if its expected earnings before interest and taxes (EBIT) are less than the break-even level? Assume there are no taxes.

Select the leverage option because the debt-equity ratio is less than 0.50

Select the leverage option since the expected EBIT is less than the break-even level

Select the unlevered option since the debt-equity ratio is less than 0.50

Select the unlevered option since the expected EBIT is less than the break-even level

Cannot be determined from the information provided