1. What is the break-even EPS for these two capital structures?

2. Will the proposed capital structure affect the total value of the firm? Discuss.

3. Suppose now that corporate taxes are in effect at a rate of 40.00% (this assumption will

   also hold for g. and h.). What is the cost of equity for the unlevered firm based on

   expected EBIT?

4. What is the cost of equity of the levered firm?

5. What is the value of the levered firm?

The statement of financial position for Orleans Limited is shown below in book value and market value terms: Statement of Financial Position Cash Common stock ($1 par value) 131,750 67,500 Fixed Assets Capital Surplus 1,185,750 145,000 Retained Earnings 1,105,000 Total Total 1,317,500 1,317,500 Orleans Limited has 67,500 shares outstanding with a market price of $19.52 per share. The par value of the common stock is $1 per share. There are no transactions costs. Earnings for the year are expected to be $300,000. Assume each question is independent unless otherwise specified. The statement of financial position for Orleans Limited is shown below in book value and market value terms: Statement of Financial Position Cash Common stock ($1 par value) 131,750 67,500 Fixed Assets Capital Surplus 1,185,750 145,000 Retained Earnings 1,105,000 Total Total 1,317,500 1,317,500 Orleans Limited has 67,500 shares outstanding with a market price of $19.52 per share. The par value of the common stock is $1 per share. There are no transactions costs. Earnings for the year are expected to be $300,000. Assume each question is independent unless otherwise specified