You own 170 shares of Pathao, which is currently a 100% equity based company financed with 8000

shares outstanding. Each stock of pathao currently sells for $40. The current EBIT is $40000. Pathao is

currently debating whether they should convert into a 40% debt capital structure with 10% interest.

Ultimately, they decided to stick to their 100% equity based capital structure. However, you personally

prefer the 40% debt based capital structure. Use homemade leverage to covert your unlevered cash

flow to levered cash flow. Share price will remain constant throughout. Ignore tax.

a) What will be your total earnings in both levered and unlevered capital structure?

b) How much new debt would you have to take? How many new shares would you have to buy?