1 a) Calculate the Interest, Net income, ROE, and EPS for the current and proposed capital structure. 2 b) Calculate the Breakeven EBIT. 3 Current 4 5 Debt 6 Equity 7 Debt/Equity Ratio 8 Share Price 9 Shares Outstanding 10 Interest rate 11 12 13 14 15 16 17 EBIT 18 19 Assets 20 21 22 EBIT NN 23 $1,000,000 $0 $1,000,000 0 $4 250,000 N/A $700,000 Recession Proposed Current Capital Structure: No Debt Recession Expected $1,000,000 $800,000 $200,000 $700,000 4 $4 50,000 10% $1,400,000 Proposed Capital Structure: Debt = $800,000 Expected Expansion $2,100,000 Expansion $1,400,000 $2,100,000

a) Calculate the Interest, Net income, ROE, and EPS for the current and proposed capital structure. b) Calculate the Breakeven EBIT. \begin{tabular}{|l|r|r|} \hline & \multicolumn{1}{|c|}{ Current } & \multicolumn{1}{c|}{ Proposed } \\ \hline Assets & $1,000,000 & $1,000,000 \\ \hline Debt & $0 & $800,000 \\ \hline Equity & $1,000,000 & $200,000 \\ \hline Debt/Equity Ratio & 0 & 4 \\ \hline SharePrice & $4 & $4 \\ \hline Shares Outstanding & 250,000 & 50,000 \\ \hline Interest rate & N/A & 10% \\ \hline \end{tabular} \begin{tabular}{|l|c|c|c|} \hline \multicolumn{4}{|c|}{ Current Capital Structure: No Debt } \\ \hline & Recession & Expected & Expansion \\ \hline EaIT & $700,000 & $1,400,000 & $2,100,000 \\ \hline \end{tabular} \begin{tabular}{|l|c|c|c|} \hline \multicolumn{4}{|c|}{ Proposed Capital Structure: Debt =$800,000} \\ \hline Recession & Expected & Expansion \\ \hline EBIT & $700,000 & $1,400,000 & $2,100,000 \\ \hline \end{tabular}