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EBITEPS and capital structure Data-Check is considering two capital structures. The key information is shown in the following table. Assume a 21% tax rate. Source
EBITEPS and capital structure Data-Check is considering two capital structures. The key information is shown in the following table. Assume a 21% tax rate. Source of capital Long-term debt Common stock Structure A $90,000 at 15.5% coupon rate 4,800 shares Structure B $180,000 at 16.5% coupon rate 2,400 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 $72,000, which structure would you recommend? Why? What if the tax rate was higher, say 40%? 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 $50,000 and $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 (4,800 shares)
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