Detailed Answer
Answer (B) is correct. Net income is $18,000,000 [($35,000,000 EBIT – $5,000,000 interest) × (1.0 – .4 tax rate)], and EPS is $7 [($18,000,000 NI – $4,000,000 preferred dividends) ÷ 2,000,000 common shares]. Consequently, the market price is $56 ($7 EPS × 8 P/E ratio).