Please help solve this problem step by step and explain how you did it along the way...

Pulp Paper Company and Holt Paper Company are each able to generate earnings before interest and taxes of $150,000. The separate capital structures for Pulp and Holt are shown below:

Pulp		Holt
Debt @ 10%	$ 800,000	Debt @ 10%	$ 400,000
Common stock, $5 par	700,000	Common stock, $5 par	1,100,000
Total	$1,500,000	Total	$1,500,000
Common shares	140,000	Common shares	220,000

Compute earnings per share for both firms. Assume a 40 percent tax rate.

In part 1, you should have the same answer for both companies earnings per share. Assuming a P/E ratio of 20 for each company, what would each companys stock price be?

Now as part of your analysis, assume the P/E ratio would be 15 for the riskier company in terms of heavy debt utilization in the capital structure and 26 for the less risky company. What would the stock prices for the two firms be under these assumptions? (Note: Although interest rates also would likely be different based on risk, we hold them constant for ease of analysis.)