Debt (long-term only)45%

Common equity55

Total liabilities and equity100%

For the coming year, management expects after-tax earnings of $2.5 million. Ezzell's past dividend policy of paying out 60 percent of earnings will continue. Present commitments from its investment banker will allow Ezzell to borrow according to the following schedule:

Loan AmountInterest Rate

$1 to $500,0009% on this increment of debt

$500,001 to $900,00011% on this increment of debt

$900,001 and above13% on this increment of debt

The company's marginal tax rate is 40 percent, the current market price of its stock is $22 per share, its last dividend was $2.20 per share, and the expected growth rate is 5 percent. External equity (new common stock) can be sold at a flotation cost of 10 percent.

Ezzell has the following investment opportunities for the next year:

ProjectCostAnnual Cash Flows Expected LifeReturn

1$675,000$155,4018 years?

2900,000 268,484 515%

3375,000 161,5243?

4562,500 185,1944 12

5 750,000127,351 1011

a. How many breaks are there in the MCC schedule? At what dollar amounts do the breaks occur, and what causes them?