Structure A is a 100% equity structure with 150,000 shares outstanding and a $500,000 market value.

Structure B is a 50/50 debt equity split with a total market value of $500,000

The rate on the debt will be 10%. Assume a tax rate of 35% and a projected EBIT of $75,000

	Structure A		Structure B
EBIT	75,000		75,000
Interest	0		25,000
Taxes	26,250		17,500
Net Income	48,750		32,500
EPS	.325		.217
ROE	9.75%		13%

What structure provides the better results for the company?

Does including taxes in the analysis make a difference in the results?

What is the primary impact of financial leverage on stockholders?