Conrad, a producer of aircraft engines, has an EBIT of $4 million; tax rate of 35%; debt outstanding of $2 million; cost of debt (Kd), 10%; Cost of equity (Ks), 15%; Shares of stock outstanding, 600,000; and book value per share, $10. Since Conrads product market is stable and the company expects no growth, all earnings are paid out as dividends. The debt consists of perpetual bonds.

1. What are Conrads earnings per share (EPS) and its price per share?
2. What is Conrads weighted average cost of capital (WACC)?
3. Conrad can increase its debt by $8 million, to a total of $10 million, using the new debt to buy back and retire some of its shares at the current price. Its interest rate on the debt will be 12 % (it will have to call and refund the old debt), and its cost of equity will rise from 15 % to 17%. EBIT will remain constant. Should Conrad change its capital structure?
4. If Conrad did not have to refund the $2 million of old debt, how would this affect things? Assume that the new and the still outstanding debt are equally risky, with Kd of 12%, but that the coupon rate on the old debt is 10%.
5. What is Conrads Times interest earned (TIE) coverage ratio?