9. Integrative-Optimal capital structure Medallion Cooling Systems, Inc., has total assets of $10,400,000, EBIT of $2,040,000, and preferred dividends of $204,000 and is taxed at a rate of 40%. In an effort to determine the optimal capital structure, the firm has assembled data on the cost of debt, the number of shares of common stock for various levels of indebtedness, and the overall required return on investment: Capital structure debt ratio 0% 15 30 Cost of debt, rd 0% 8.1 9.1 Number of common stock shares 202,000 173,000 141,000 106,000 85,000 Required return, rs 12.2% 13.3 14.2 15.9 19.9 45 11.7 15.3 60 a. Calculate earnings per share for each level of indebtedness. b. Use the equation Po = EPS/rs and the earnings per share calculated in part (a) to calculate a price per share for each level of indebtedness. c. Choose the optimal capital structure. Justify your choice. a. Calculate earnings per share for each level of indebtedness. Calculate the EPS below: (Round to the nearest dollar. Round the EPS to the nearest cent.) Debt Ratio 0% EBIT $ 2,040,000 Less: Interest EBT Taxes @40% $ $ Net profit Less: erred dividends Profits available to common stockholders # shares outstanding 202,000 EPS Calculate the EPS below: (Round to the nearest dollar. Round the EPS to the nearest cent.) Debt Ratio 15% EBIT $ 2,040,000 Less: Interest $ EBT $ Taxes @40% $ $ Net profit Less: Preferred dividends $ Profits available to common stockholders $ # shares outstanding $ 173,000 EPS $ Calculate the EPS below: (Round to the nearest dollar. Round the EPS to the nearest cent.) Debt Ratio 30% EBIT $ 2,040,000 Less: Interest $ EBT $ Taxes @40% $ $ Net profit Less: Preferred dividends $ Profits available to common stockholders $ # shares outstanding $ 141,000 EPS $ Calculate the EPS below: (Round to the nearest dollar. Round the EPS to the nearest cent.) Debt Ratio 45% EBIT $ 2,040,000 Less: Interest EBT Taxes @40% $ $ Net profit Less: Preferred dividends $ Profits available to common stockholders $ # shares outstanding 106,000 EPS $ Debt Ratio 60% EBIT $ 2,040,000 Less: Interest $ EBT Taxes @40% $ $ Net profit Less: Preferred dividends $ Profits available to common stockholders $ # shares outstanding $ 85,000 EPS $