Litho-Print is considering two possible capital structures, A and B, shown in the following table. Assume a
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Litho-Print is considering two possible capital structures, A and B, shown in the following table. Assume a 40% tax rate.
a. Calculate two EBIT-EPS coordinates for each of the structures by selecting any two EBIT values and finding their associated EPS values.
b. Graph the two capital structures on the same set of EBIT-EPS axes.
c. Discuss the leverage and risk associated with each of the structures.
d. Over what range of EBIT is each structure preferred?
e. Which structure do you recommend if the firm expects its EBIT to be $35,000?Explain.
Transcribed Image Text:
Source of capital Structure A $75,000 at 16% coupon rate $10,000 with an 18% annual dividend 8,000 shares Structure B $50,000 at 15% coupon rate $15,000 with an 18% annual dividend 10,000 shares Long-term debt Preferred stock Common stock
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a Structure A Structure B EBIT 30000 50000 30000 50000 Less Interest 12000 12000 7500 7500 N...View the full answer
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Related Book For
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
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