Question
The CFO of Ink Imagination (II) wants to calculate next years EPS using different leverage ratios. IIs total assets are $5 million, and its marginal
The CFO of Ink Imagination (II) wants to calculate next years EPS using different leverage ratios. IIs total assets are $5 million, and its marginal tax rate is 40 percent. The company has estimated next years EBIT for three possible economic states: $1.2 million with a 0.2 probability, $800,000 with a 0.5 probability, and $500,000 with a 0.3 probability. Calculate IIs expected EPS, standard deviation, and coefficient of variation for each of the following capital structures. Which capital structure should the firm choose to lower the firms risk? *SHOW ALL WORK*
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