ANSWER QUESTIONS A, B AND C

A -Sand Key Development Company has a capital structure consisting of $20 million of 10% debt and $30 million of common equity. The firm has 500,000 shares of common stock outstanding. Sand Key is planning a major expansion and will need to raise $15 million. The firm must decide whether to finance the expansion with debt or equity. If equity financing is selected, common stock will be sold at $75 per share. If debt financing is chosen, 6% coupon bonds will be sold. The firm's marginal tax rate is 34%. Determine the level of operating income at which Sand Key would be indifferent between debt financing and equity financing.

B - Suppose you own 5% of Sand Key Development Company's 400,000 outstanding common shares. The stock was trading for $135 per share before Coastal executives announced a 3-for-2 stock split. After the split, you will own _____ shares worth _____ per share.

C - You currently own 100 shares of stock in Beverly Brothers Inc. The stock currently trades at $120 a share. The company is contemplating a 2-for-1 stock split. Which of the following best describes your position after the proposed stock split takes place?

You will have 100 shares of stock, and the stock will trade at or near $60 a share.

You will have 200 shares of stock, and the stock will trade at or near $60 a share.

You will have 200 shares of stock, and the stock will trade at or near $120 a share.

You will have 50 shares of stock, and the stock will trade at or near $60 a share.

You will have 50 shares of stock, and the stock will trade at or near $120 a share.