Loving Gardens (LG) has $4 million in assets, $400,000 EBIT, and a marginal tax rate equal to 40 percent. If LG's debt ratio (D/TA) is 40 percent, interest on its debt is 11 percent, whereas if the debt ratio is 20 percent, interest is 8 percent. LG will have 74,000 shares of stock outstanding if it is financed with 40 percent debt, but it will have 51,000 shares outstanding with 20 percent debt. Calculate LG's EPS and ROE (ROE = Net income/Equity) for each capital structure. Do not round intermediate calculations. Round your answers for EPS to the nearest cent and for ROE to two decimal places.

	40% debt		20% debt
EPS	$		$
ROE	%		%

Which capital structure is better?

The capital structure with -Select-40%20%Item 5 debt appears to be better.