The Connecticut Computer Company has the selected financial results shown below.

	15% Debt	40% Debt	75% Debt
Debt	$12000
Equity	68000
Total Capital	$80000
Shares@ $5	13600
EBIT	$13600
Interest (15%)	1800
EBT	$11800
Tax (40%)	4720
Net Income	$7080
ROE
EPS

The company is considering a capital restructuring to increase leverage from its present level of 15% of capital.

1. Calculate Connecticut's ROE and EPS under its current capital structure.
2. Restate the financial statement line items shown, the number of shares outstanding, ROE, and EPS if Connecticut borrows money and uses it to retire stock until its capital structure is 40% debt assuming EBIT remains unchanged and the stock continues to sell at its book value. (Develop the second column of the chart shown.)
3. Recalculate the same figures assuming Connecticut continues to restructure until its capital structure is 75% debt. (Develop the third column of the chart.) Round ROE to one decimal place. Round EPS to two decimal places. Enter all amounts as positive numbers.

   	15% Debt	40% Debt	75% Debt
   Debt	$12000	$	$
   Equity	68000
   Total Capital	$80000	$	$
   Shares@ $5	13600
   EBIT	$13600
   Interest (15%)	1800
   EBT	$11800	$	$
   Tax (40%)	4720
   Net Income	$7080	$	$
   ROE	%	%	%
   EPS	$	$	$

4. How is increasing leverage affecting financial performance? What overall effect might the changes have on the market price of Connecticuts stock? Why? (Words only. Hint: Consider the move from 15% to 40% and that from 40% to 75% separately.) The input in the box below will not be graded, but may be reviewed and considered by your instructor.