FIN425: Capital Structure Practice #1 The Water Products Company has a corporate tax rate of 35% and expected EBIT of $ 1 million. Its entire earnings after taxes are paid out as dividends. The firm is currently all-equity financed, but is considering an alternative capital structure. Under the proposed capital structure, the company would have $4,000,000 of debt with an interest rate of 10%. The chief financial officer for Water Products makes the following calculations: Current Proposed $1,000,000 Earnings before interest and corporate taxes (EBIT) nterest (RpD axable Income axes @35% et Income 650,000 $ 650,000 Total income to stockholders and bondholders (1) Fill in the table for the proposed capital structure. (2) Does the restructuring create value? Explain why or whynot. (3) How would your answer change if the corporate tax rate were zero? FIN425: Capital Structure Practice #1 The Water Products Company has a corporate tax rate of 35% and expected EBIT of $ 1 million. Its entire earnings after taxes are paid out as dividends. The firm is currently all-equity financed, but is considering an alternative capital structure. Under the proposed capital structure, the company would have $4,000,000 of debt with an interest rate of 10%. The chief financial officer for Water Products makes the following calculations: Current Proposed $1,000,000 Earnings before interest and corporate taxes (EBIT) nterest (RpD axable Income axes @35% et Income 650,000 $ 650,000 Total income to stockholders and bondholders (1) Fill in the table for the proposed capital structure. (2) Does the restructuring create value? Explain why or whynot. (3) How would your answer change if the corporate tax rate were zero