Loving Gardens (LG) has $7 million in assets, $700,000 EBIT, and a marginal tax rate equal to 40 percent. If LG's debt ratio (D/TA) is 70 percent, interest on its debt is 10 percent, whereas if the debt ratio is 30 percent, interest is 8 percent. LG will have 76,000 shares of stock outstanding if it is financed with 70 percent debt, but it will have 80,000 shares outstanding with 30 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.

70% debt 30% debt

EPS $ $

ROE % %

Which capital structure is better?

The capital structure with 70% or 30% debt appears to be better.