Expected EPS after Leveraging Daddi Mac, Inc., doesn't face any taxes and has $290 million in assets, currently financed entirely with equity. Equity is worth $37 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: 

The firm is considering switching to a 20-percent-debt capital structure and has determined that it would have to pay an 8 percent yield on per- petual debt in either event. What will be the level of expected EPS if the firm switches to the proposed capital structure? (LG3)

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State Probability of state Recession 0.25 Average Boom 0.55 Expected EBIT in state $5 million $10 million 0.20 $17 million