7. Current Cap. Structure Proposed Cap. Structure

Assets $ 15 million $15 million

Debt $0 $6 million

Shares O/S 600,000 ?

Bond Int. Rate n/a 10%

Price per share = $25

There are no taxes. EBIT is expected to be $2.5 million, but could be 40% higher if an economic expansion occurs, or 20% lower if a recession occurs. All values are market values.

What is EPS during an expansion for the proposed capital structure?

A. $4.17

B. $5.03

C. $5.83

D. $8.06

E. $9.72