Cross City Tunnel (CCT) Ltd currently has 5 million shares on issue each with a market price of $2.50. CCT also has $7 million of debt. The Chief Financial Offer is considering changing the capital structure by repaying $3 million of debt using funds raised from an equity issue. The interest rate on debt is 10% p.a. and the company tax rate is 30%. Calculate EPS for both the current and the proposed capital structures at a projected EBIT level of $3.7 million. Which capital structure is preferable if this is the expected level of EBIT?

Important: please show the formulas. Please explain thoroughly your calculations and answers.