Geniaware is considering two capital structures. The key information is shown in the following table. Assume a 24% tax rate.

a. Calculate the EBIT-EPS coordinates for each of the structures for EBIT values of €30,000 and €50,000 with their associated EPS values.

b. Plot the two capital structures on a set of EBIT-EPS axes.

c. Indicate over what EBIT range, if any, each structure is preferred.

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

e. If the firm is fairly certain that its EBIT will exceed €55,000, which structure would you recommend? Why?

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Source of capital Long-term debt Common stock Structure A 75,000 at 16% coupon rate 8,000 shares Structure B 50,000 at 15% coupon rate 10,000 shares