EBIT-EPS Analysis: 1. Current cap. structure Proposed cap. structure Assets $15 million $15 million Debt $0 $6 million Equity $15 million $9 million Share price $25.00 $22.50 Shares outstanding 600,000 ??? Bond coupon rate N/A 8% There are no taxes. EBIT is expected to be $2.5 million, but could be as high as $3.5 million if an economic expansion occurs, or as low as $2 million if a recession occurs. All values are market values. A. How many shares are outstanding under the proposed capital structure? B. What is EPS under the current capital structure if there is a recession? C. What is EPS during an expansion for the proposed capital structure? D. What is ROE for the proposed capital structure if the expected state occurs? F. What is the breakeven EPS for these two capital structures?

2. An unlevered firm with a market value of $1 million has 50,000 shares outstanding. The firm restructures itself by issuing 200 new par bonds with face value $1,000 and an 8% coupon. The firm uses the proceeds to repurchase outstanding stock. In considering the newly levered versus formerly unlevered firm, what is the breakeven EBIT? Ignore taxes.

Please provide all work, not just the final solution so it can be modeled for other problems, thank you :)