Amount borrowed	Value of Equity	Value of Firm	Stock Price	WACC	EPS
0	18,460	18,460	18.46	13.00%	2.40
$2 Million	17,320	19,320	19.32	12.42%	2.55
$4 Million	15,830	19,830	19.83	12.10%	2.70
$6 Million	14,020	20,020	20.03	11.99%	2.54
$8 Million	16,570	24,570	24.57	11.50%	3.04
$10 Million	12,000	22,000	22.00	12.00%	3.20

NOTE: Value of the Firm is equal to the Amount Borrowed plus the Value of Equity

a) Falcon Air, Inc. is considering a debt issue and is trying to determine the appropriate amount to issue. Considering the information in the table above, indicate which amount borrowed you believe to be the optimal level of debt and explain completely why.

b) In our conversations about optimal capital structure, we discussed a set of equivalent problems that could be solved and analyzed that should lead to the same result (e.g., the same optimal level of debt solves all three problems). One problem, that of earnings per share, was determined not to be an equivalent problem. Briefly explain why using EPS is not a reasonable means for determining the optimal level of debt, D*.