Use the following to answer questions 10-11:

Current capital structure

Proposed capital structure

Assets

$15,000,000

$15,000,000

Debt

$0

$6,000,000

Equity

$15,000,000

$9,000,000

Share price

$25

$22.5

Shares outstanding

600,000

400,000

Bond coupon rate

8%

There are no taxes.EBIT is expected to be $2.5 million, but could be as high as $3.5 million if an economic expansion occurs, or as low as $2 million if a recession occurs.All values are market values.

10- What is EPS under the current capital structure if there is a recession?

A)$3.33

B)$4.17

C)$5.00

D)$6.25

E)$7.15

11- What is the break-even EBIT for these two capital structures?

A)$720,000

B)$1,250,000

C)$1,440,000

D)$2,000,000

E)$2,500,000