You have 500,000 shares outstanding at $20 per share and 100% equity financing. You propose to borrow $6,000,000 of debt at an 10% interest rate. The money raised will buy back 300,000 of our shares at $20 per share. If there is no income tax and the EBIT is $800,000, record the EPS for the following capital structures to the nearest $0.01 per share without the dollar sign, e.g., 12.38. Record the indifference EBIT to the nearest dollar.

1. Original capital structure Answer

2. Proposed capital structure Answer

3. The proposed capital structure will Answer the variability of the earnings per share

4. What is the indifference EBIT for the two capital structures?

5. If the EBIT is higher than the indifference EBIT, the ?? --- will have a higher EPS.