Company A operating profit (EBIT) is expected to be $1.0 million. Its tax rate is 40 percent. Shares are valued $25. Capital structure is either short-term financing at 6 percent or equity. There is no long-term debt.

A. Calculate expected earnings per share (EPS) if the firm is perfectly hedged.

B. Calculate expected EPS it has a capital structure of 40% debt.

C. Recalculate a and b if short-term rates go to 11 percent.

orations.-]profit ma`