Managing EPS Through Leverage: Example 14-1 1. The Tanenbaum Tea Company wants to show the stock market an EPS of S3 per share, but doesn't expect to be able to improve profitability over what is reflected in the financial plan for next year. The plan is partially reproduced as follows. Tanenbaum Tea Company Financial Projection 200X (5000) EBIT $18,750 Debt $ 13,000 Interest (@12%) 1,560 Equity 97,000 EBT $17,190 Capital $110,000 Tax (38%) 6.532 EAT $10,658 #shares = 3,700,000 Tanenbaum's stock sells at book value. Will trading equity for debt help the firm achieve its EPS goal, and if so what debt level will produce the desired EPS? ROCE - EBIT (1-T)/Debt + Equity ROCE = EBIT (1-T)/Debt + Equity - After-tax cost of debt -ka(1-T) (Ctrl- Focus E