Question: Data-Check is considering two capital structures. The key information is shown in the following table. Assume a 40% tax rate. Source of capital Structure A

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

Source of capital Structure A Structure B Long-term debt $96000 at 15.2% coupon rate $192,000 at 16.2% coupon rate Common stock 4,800 shares 2,400 shares

a. Calculate two EBITEPS 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 EBITEPS 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?

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