Your firm has the following financing outstanding.

Debt: 50,000 units of 8%, 25-year bonds at a net price of $1198.00.

Preferred Stock: 120,000 shares of 8.5%, $100 preferred stock at a net issue price of $112.

Common Stock: 2,000,000 shares of common stock with a Beta of 1.1 and a net price of $65.

Retained Earnings: $96,660,000.

Market: tax rate = 40%, MRP (market risk premium) = 9%, R_f (risk free rate) = 3.1%.

If the firm should decide to finance the $120 million expansion with external funds, demonstrate the effect on EPS of 100% debt versus 100% equity financing. Use a before tax cost of 8% on the new debt financing. Given an EBIT most likely equal to $30 million, expected Preferred Dividends of $1 million, and an existing debt interest expense of $4 million. The common stock price will fall to $60 if new common stock is issued. [Round amounts to nearest million.]

	100% Debt (5 points)	100% Equity (5 points)
EBIT
Interest (existing)
Interest (forecasted for new financing)
EBT
Tax (40%)
EAT
Preferred Dividends
EACSH
(Divide by) NSHOUT
EPS