Zheng Sen€™s Chinese Take-Out had earnings before interest and taxes of $4 million last year. The firm has a marginal tax rate of 40 percent and currently has the following capital structure:

Calculate the firm€™s after-tax return on equity (ROE) and earnings per share EPS)
If the firm retires $4 million of preferred stock using the proceeds from an equal increase in long-term debt, what would have been the after-tax ROE and EPS?
If the firm retires $4 million of preferred stock using the proceeds from the sale of 500,000 shares of common stock, what would have been the after-tax ROE andEPS?

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Total Capital Source of Capital Long-term Debt at 12% Amount Perentage of $8,000,000 25% 25 Preferred Stock at 14% Common Stock Equity (2,000,000 shares outstanding 8,000,00 16,000,000 $32,000,000 50 100%