Fresh Start Systems, Bhd., own total assets amounting to RM 10,000,000, with EBIT of RM 2,000,000, with preferred dividends of RM 200,000 and is taxed at a rate of 40% per annum. As the firm needs to determine its optimal capital structure, the firm has gathered following data on the cost of debt, number of common stock outstanding for various levels of debt ratios, and the overall required return on investment:

Capital Structure Debt Ratio	Cost of debt, rd	Number of common stock shares	Required return, rs
0%	0%	200,000	12%
15%	8%	170,000	13
30%	9%	140,000	14
45%	12%	110,000	16
60%	15%	80,000	20

) What are the earnings per share for each level of capital structure debt ratio?

(4 markah/marks)

ii) Calculate the earnings per share calculated in part (i) to calculate a price per share for each level of capital Structure Debt Ratio using formulae P₀ = EPS/r_s

(4 markah/marks)

iii) Choose the optimal capital structure. Justify your choice.

(2 markah/marks)