Geniaware is considering two capital structures. The key information is shown in the following table. Assume a

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Geniaware is considering two capital structures. The key information is shown in the following table. Assume a 24% tax rate.

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a. Calculate the EBIT-EPS coordinates for each of the structures for EBIT values of €30,000 and €50,000 with their associated EPS values.

b. Plot the two capital structures on a set of EBIT-EPS axes.

c. Indicate over what EBIT range, if any, each structure is preferred.

d. Discuss the leverage and risk aspects of each structure.

e. If the firm is fairly certain that its EBIT will exceed €55,000, which structure would you recommend? Why?

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Principles Of Managerial Finance Brief

ISBN: 9781292267142

8th Global Edition

Authors: Chad J. Zutter, Scott B. Smart

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