EBITlong dashEPS

and capital structureData-Check is considering two capital structures. The key information is shown in the following table. Assume a

40 %40%

tax rate.

Source of capital	Structure A	Structure B
Long-term debt	$ 92 comma 000$92,000 at 15.2 %15.2% coupon rate	$ 184 comma 000$184,000 at 16.2 %16.2% coupon rate
Common stock	4 comma 0004,000 shares	2 comma 0002,000 shares

a. Calculate two EBIT-EPS coordinates for each of the structures by selecting any two EBIT values and finding their associated EPS values.

b. Plot the two capital structures on a set of EBIT-EPS axes.

c. Indicate over what EBIT range, if any, each structure is preferred.

d. Discuss the leverage and risk aspects of each structure.

e. If the firm is fairly certain that its EBIT will exceed

$ 76 comma 000$76,000,

which structure would you recommend? Why?

a. Calculate two EBIT-EPS coordinates for each of the structures by selecting any two EBIT values and finding their associated EPS values.

Complete the tables below using

$ 50 comma 000$50,000

and

$ 60 comma 000$60,000

EBIT:(Round to the nearest dollar. Round the EPS to the nearest cent.)

	Structure A
EBIT	$	50,000
Less: Interest	$
Net profits before taxes	$
Less: Taxes	$
Net profit after taxes	$
EPS (4,000 shares)	$