Question 1

EBITlong dashEPS and capital structureData-Check is considering two capital structures. The key information is shown in the following table. Assume a 40% tax rate.

Source of capital	Structure A	Structure B
Long-term debt	$99,000 at 15.1% coupon rate	198,000 at 16.1% coupon rate
Common stock	4,400 shares	2,200 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. Plot the two capital structures on a set of EBIT-EPS axes.

c. Indicate over what EBIT range, if any, each structure is preferred.

d. Discuss the leverage and risk aspects of each structure.

e. If the firm is fairly certain that its EBIT will exceed $80, 000, which structure would yourecommend? why?

a. Calculate two EBIT-EPS coordinates for each of the structures by selecting any two EBIT values and finding their associated EPS values.

Complete the tables below using $50,000 and $60,000 EBIT:

	Structure A
EBIT	$	50,000
Less: Interest	$
Net profits before taxes	$
Less: Taxes	$
Net profit after taxes	$
EPS (4,400 shares)	$