Question: Data-Check is considering two capital structures. The key information is shown in the following table. Assume a 40% tax rate. a. Calculate two EBIT-EPS coordinates

Data-Check is considering two capital structures. The key information is shown in the following table. Assume a 40% tax rate.

a. Calculate two EBIT-EPS coordinates for each of the structures by selecting any two EBIT values and finding 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 $75,000, which structure would you recommend?Why?

Source of capital Structure A Long-term debt $100,000 at 16% coupon rate Common stock 000 sharcs Structurc B $200,000 at 17% coupon rate 2,000 shares

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a Using 50000 and 60000 EBIT Structure A Structure B EBIT 50000 60000 50000 60000 Less Interest 1600... View full answer

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