MountainHigh  has selected a capital structure D/A = 0.75. Once the firm selects its target capital structure it envisions two possible scenarios for its operations: Feast or Famine. The Feast scenario has a 50 percent probability of occurring and forecast EBIT in this state is $60,000. The Famine state has a 50 percent chance of occurring and the EBIT is expected to be $20,000. Further, the debt cost will be 12 percent. The firm will have $400,000 in total assets, it will face a 40 percent marginal tax rate, and the book value of equity per share under either scenario is $10.00 per share.

What is the coefficient of variation of expected EPS under the capital structure plan?

	a.	1.18
	b.	3.76
	c.	5.00
	d.	2.88
	e.	2.45

Answer rating: 100% (QA)

The coefficient of variation CV is a measure of relative variability that indicates the risk per unit of return It is calculated as the ratio of the s... View the full answer