Question 5 (15 marks) Thando Ltd had approached your company to analyse 2 possible capital structures. The firm currently has total assets of R5 million and it is assumed to be constant. It also has a book value per share of R40 and a current tax rate of 35%. One of the analysts in your company had performed some preliminary work and had indicated the following earnings before interest and taxes (EBIT) under three possible economic probability states: EBIT R 725,000 1,250,000 1,750,000 Probability state 30% 45% 25% The analyst provided the following additional information to conduct the analysis. Debt ratio Cost of equity Cost of borrowing 9.35% 10.36 65% 75 10.88% 15.35 5.1. Determine the earnings per share under each of the possible capital structures. (10) 5.2. Determine the expected earnings per share and share price under each of the possible capital structures. (5) Question 5 (15 marks) Thando Ltd had approached your company to analyse 2 possible capital structures. The firm currently has total assets of R5 million and it is assumed to be constant. It also has a book value per share of R40 and a current tax rate of 35%. One of the analysts in your company had performed some preliminary work and had indicated the following earnings before interest and taxes (EBIT) under three possible economic probability states: EBIT R 725,000 1,250,000 1,750,000 Probability state 30% 45% 25% The analyst provided the following additional information to conduct the analysis. Debt ratio Cost of equity Cost of borrowing 9.35% 10.36 65% 75 10.88% 15.35 5.1. Determine the earnings per share under each of the possible capital structures. (10) 5.2. Determine the expected earnings per share and share price under each of the possible capital structures