As Chief Financial Officer of the SeaSaw Corporation (SSC), you are considering a recapitalization plan that would convert SSC from its current all-equity capital structure to one including substantial financial leverage. SSC now has 200,000 shares of common stock outstanding, which are selling for $60.00 each, and the recapitalization proposal is to issue $4,000,000 worth of long-term debt at an interest rate of 8.0 percent and use the proceeds to repurchase $4,000,000 of common stock.

Question 1. What is the new debt-to-equity ratio if the recapitalization is completed? How many shares will be left outstanding? (the stock can be repurchased at $60 per share)

Question 2. The tax rate is 0%. What is the earnings per share under the new plan if EBIT is $800,000 in the next year? (the stock can be repurchased at $60 per share)