Loving Gardens $($LG$)$ has $$5$ million in assets, $$500,000$ EBIT, and a marginal tax rate equal to $40$ percent. If LG$\text{'}$s debt ratio $($D$/$TA$)$ is $20$ percent, interest on its debt is $8$ percent, whereas if the debt ratio is $60$ percent, interest is $11$ percent. LG will have $56,000$ shares of stock outstanding if it is financed with $20$ percent debt, but it will have $57,000$ shares outstanding with $60$ percent debt. Calculate LG$\text{'}$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.

$20\%$ debt $60\%$ debt

EPS $ $

ROE $\%\%$

Which capital structure is better?

The capital structure with debt appears to be better.