1. Suppose that a company's equity is currently selling for $25.00 per share and that there are 3.4 million shares outstanding and 14 thousand bonds outstanding, which are selling at 94 percent of par. If the firm was considering an active change to their capital structure so that the firm would have a D/E of 0.7, which type of security (stocks or bonds) would they need to sell to accomplish this, and how much would they have to sell? (Round your intermediate ratio to 4 decimal places.)

• $27,259,032 in new equity

• $23,604,500 in new equity

• $23,604,500 in new debt

• $27,259,032 in new debt

2. Your company faces a 21% tax rate and has $266 million in assets, currently financed entirely with equity. Equity is worth $9.60 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:

State	Pessimistic				Optimistic
Probability of state		0.25				0.75
Expected EBIT in state	$	11.6	million		$	51.6	million

The firm is considering switching to a 20 percent debt capital structure, and has determined that they would have to pay a 9 percent yield on perpetual debt in either event. What will be the level of expected EPS if they switch to the proposed capital structure? (Round your intermediate calculations and final answer to 2 decimal places, except calculation of number of shares which should be rounded to nearest whole number.)

• $1.91

• $1.31

• $.96

• $1.67