EBIT-EPS and preferred stock Litho-Print is considering two possible capital structures. A and B, shown in the following table Assume a 40% tax rate Source of capital Structure A Structure B Long-term debt $79,000 at 15.1% coupon rate $54.000 at 14.1% coupon rate Preferred stock $12.000 with an annual dividend of 18.2% 517.000 with an annual dividend of 18.2% Common stock 8,200 shares 10.200 shares a. Calculate two EBIT-EPS coordinates for each of the structures by selecting any two EBIT values and finding their associated EPS values b. Graph the two capital structures on the same set of EBIT-EPS axes. c. Discuss the leverage and risk associated with each of the structures. d. Over what range of EBIT is each structure preferred? e. Which structure do you recommend if the firm expects its EBIT to be greater than $44,000? Explain S Complete the tables below using $30,000 and $50,000 EBIT (Round to the nearest dollar. Round the EPS to three decimal places.) Structure A EBIT 30.000 Less Interest Net profits before taxes Less Taxes Net profit after taxes Loss Preferred dividends 5 Earnings available for common shareholders S EPS (8.200 shares) S (Round to the nearest dollar. Round the EPS to three decimal places.) $ (Round to the nearest dollar. Round the EPS to three decimal places) Structure A EBIT $ 50.000 Less Interest 5 $ S Net profits before taxes Less: Taxes Net profit after taxes Less: Preferred dividends Earnings available for common shareholders $ S EPS (8.200 shares (Round to the nearest dollar. Round the EPS to three decimal places.) Structure B $ 30,000 EBIT $ S Less: Interest Net profits before taxes Less TaxES Net profit after taxes Less. Preferred dividends Earnings available for common shareholders EPS (10 200 shares) S S $ (Round to the nearest dollar Round the EPS to three decimal places) Structure B EBIT $ 50,000 $ Less: Interest Net profits before taxes Less: Taxes CA $ Net profit after taxes Less Preferred dividends Earnings available for common shareholders 5 EPS (10.200 shares) The financial breakeven point for structure Ais $ (Round to the nearest dollar.) The financial breakeven point for structure B is $ (Round to the nearest dollar.) c. Discuss the leverage and link asociated with each of the structuros. (Select from the drop down menus Structure has greater financial leverage, hence financial risk d. Over what range of EBIT is each structure preferred? (Select from the drop-down menus) IF EBIT is expected to be below the crossover point Structure is preferred. If EpiT is expected to be above the crossover point is preferred e. Which structure do you recommend if the firm expects its EBIT to be greater than $44.000? Explain Select from the drop-down menu Lenovo Structure 1 EBIT is greater than $14.000 Structure is recommended since changes in EPS are much greater forgiven values of EBIT