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EBIT—EPS and capital structure????Data-Check is considering two capital structures. The key information is shown in the following...

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Finance

EBIT—EPS and capital structure????Data-Check isconsidering two capital structures. The key information is shown inthe following table. Assume a 21% tax rate.

Source of capital    Structure A   Structure B

?Long-term debt    $98,000 at 15.6% coupon rate$196,000 at 16.6% coupon rate

Common stock 4,800 shares    2,400 shares

a. Calculate two ?EBIT-EPS coordinates for each of thestructures by selecting any two EBIT values and finding theirassociated EPS values.

b. Plot the two capital structures on a set of? EBIT-EPSaxes.

c. Indicate over what EBIT? range, if? any, each structure ispreferred.

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

e. If the firm is fairly certain that its EBIT will exceed$72,000?, which structure would you? recommend? Why? What if thetax rate was? higher, say? 40%?

a. Calculate two ?EBIT-EPS coordinates for each of thestructures by selecting any two EBIT values and finding theirassociated EPS values.

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

Answer & Explanation Solved by verified expert
4.4 Ratings (712 Votes)
aStructure AStructure BEBIT50000600005000060000Less Interest15288152883253632536Net profits before taxes34712447121746427464Less Taxes 21728952938952366744576744Net profits after    See Answer
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