KEBIT-EPS and capital structure Data-Check is considering two capital structures. The key information is shown in the followingtable. Assume a 40% tax rate.Source of capitalLong-term debtCommon stockStructure A$99,000 at 15.6% coupon rate5,000 sharesStructure B$198,000 at 16.6% coupon rate2,500 sharesa. Calculate two EBIT-EPS coordinates for each of the structures by selecting any two EBIT values and finding their associated EPSvalues.b. Plot the two capital structures on a set of EBIT-EPS axes.c. Indicate over what EBIT range, if any, each structure is preferred.d. Discuss the leverage and risk aspects of each structure.e. If the firm is fairly certain that its EBIT will exceed $78,000, which structure would you recommend? Why?

Part:1. aCalculation of EBIT-EPS coordinates for each of the structures by selecting ANY 2 EBIT…

Answered: EBIT-EPS and capital structure…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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