1. Assume, there is no corporate tax. The current and proposed capital structure of ABC Corp. is given below:

	Current	Proposed
Assets	$5,000,000	$5,000,000
Debt	$2,500,000	$0
Equity	$2,500,000	$5,000,000
Debt/Equity Ratio	1	0
Share Price	$10	$10
Shares Outstanding	250,000	500,000
Interest rate	10%	N/A

ABC Corp. expects to generate an EBIT of $300,000, $650,000, or $1,000,000 depending on whether the next period of the economy is in recession, normal, or expansion. It is not certain when or whether the company will implement the proposed capital structure.

As an investor, you have 60 shares of ABC Corp. However, you desire payoffs under the proposed capital structure. How would you make such changes to your payoffs? Show all steps in detail.

Hint: Homemade leverage