K Integrative Optimal capital structure Medallion Cooling Systems, has total assets of $9,800,000, EBIT of $2,000,000,...

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K Integrative Optimal capital structure Medallion Cooling Systems, has total assets of $9,800,000, EBIT of $2,000,000, and preferred dividends of $199,000 and is taxed at a rate of 40%. In an effort to determine the optimal capital structure, the firm has assembled data on the cost of debt, the number of shares of common stock for various levels of indebtedness, and the overall required return on investment: Capital structure Number of common debt ratio Cost of debt, rd stock shares Required return, rs 0% 0% 197,000 12.2% 15 8.1 172,000 12.9 30 8.8 135,000 14.1 45 60 12.2 14.9 a. Calculate earnings per share for each level of indebtedness. b. Use the equation P = EPS/r and the earnings per share calculated in part (a) to calculate a price per share for each level of indebtedness. 106,000 15.8 84,000 19.7 a. Calculate earnings per share for each level of indebtedness. Calculate the EPS below: (Round to the nearest dollar. Round the EPS to the nearest cent.) Debt Ratio EBIT 0% 2,000,000 Less: Interest $ EBT $ Taxes @40% Net profit Less: Preferred dividends Profits available to common stockholders # shares outstanding EPS 69 S S EA EA 197,000 K Integrative Optimal capital structure Medallion Cooling Systems, has total assets of $9,800,000, EBIT of $2,000,000, and preferred dividends of $199,000 and is taxed at a rate of 40%. In an effort to determine the optimal capital structure, the firm has assembled data on the cost of debt, the number of shares of common stock for various levels of indebtedness, and the overall required return on investment: Capital structure Number of common debt ratio Cost of debt, rd stock shares Required return, rs 0% 0% 197,000 12.2% 15 8.1 172,000 12.9 30 8.8 135,000 14.1 45 60 12.2 14.9 a. Calculate earnings per share for each level of indebtedness. b. Use the equation P = EPS/r and the earnings per share calculated in part (a) to calculate a price per share for each level of indebtedness. 106,000 15.8 84,000 19.7 a. Calculate earnings per share for each level of indebtedness. Calculate the EPS below: (Round to the nearest dollar. Round the EPS to the nearest cent.) Debt Ratio EBIT 0% 2,000,000 Less: Interest $ EBT $ Taxes @40% Net profit Less: Preferred dividends Profits available to common stockholders # shares outstanding EPS 69 S S EA EA 197,000