Explain how each of the following changes will affect a companys range of earnings chart such as that shown in Figure 6.2. How would each of the changes affect the attractiveness of increased debt financing relative to increased equity financing?

a. An increase in the interest rate on the new debt to be raised.

b. An increase in the companys stock price.

c. Increased uncertainty about the issuing companys future earnings.

d. Increased cash dividends paid on common stock.

e. An increase in the amount of debt the company already has outstanding.

a range of earnings after-tax interest return on in- using ROE, chart relating rate. e only either R Mr. Jellison can construct the E or EPS to EBIT. do so a on a graph need shows the and connect the pairs in resulting appropr points with straight lines. Figure 6.2 range of earnings chart for Stryker. It presents the 2 Range of Earnings Chart for Stryker Corporation 30% 25% Bond financing 20% 15% Crossover point Stock EBIT $690 million financing e 10% 23% higher ROE with bonds 0% 400 800 1200 1600 2000 2400 2800 3200 3600 Earnings before interest and taxes (EBIT) millions)