0.5 probability, and $500,000 with a 0.3 probability. Calculate Il's expected EPS, standard deviation, and coefficient of variation for each of the following capital structures. Which capital structure do you recommend? (LO 12-2)

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12-10. The CFO of Ink Imagination (II) wants to calculate next year's EPS using
different leverage ratios. Il's total assets are $5 million, and its marginal tax
rate is 40 percent. The company has estimated next year's EBIT for three
possible economic states: $1.2 million with a 0.2 probability, $800,000 with a
0.5 probability, and $500,000 with a 0.3 probability. Calculate Il's expected
EPS, standard deviation, and coefficient of variation for each of the following
capital structures. Which capital structure do you recommend? (LO 12-2)
Leverage
(Debt/Assets) Interest Rate
20%
50
6%
10
Shares of
Stock
Outstanding
300,000
200,000
Transcribed Image Text:12-10. The CFO of Ink Imagination (II) wants to calculate next year's EPS using different leverage ratios. Il's total assets are $5 million, and its marginal tax rate is 40 percent. The company has estimated next year's EBIT for three possible economic states: $1.2 million with a 0.2 probability, $800,000 with a 0.5 probability, and $500,000 with a 0.3 probability. Calculate Il's expected EPS, standard deviation, and coefficient of variation for each of the following capital structures. Which capital structure do you recommend? (LO 12-2) Leverage (Debt/Assets) Interest Rate 20% 50 6% 10 Shares of Stock Outstanding 300,000 200,000
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