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P13-22 EBIT-EPS and capital structure Data-Check is considering two capital structures. The key information is shown in the following table. Assume a 21% tax rate. Source of capital Structure A Structure B Long-term debt $100,000 at 16% coupon rate $200,000 at 17% coupon rate Common stock 4,000 shares 2,000 shares a. Calculate two EBIT-EPS coordinates for each of the structures by selecting any two EBIT values and finding their associated EPS values. 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 $75,000, which structure would you recommend? Why? What if the tax rate is higher, say 40%? -StructureA - Sinucture B 10 కర్మింం EBIT EPS 8. 48000 కక S2,000 54,00 S6, 00

P13-22 EBIT-EPS and capital structure Data-Check is considering two capital structures. The key information is shown in the following table. Assume a 21% tax rate. Source of capital Structure A Structure B Long-term debt $100,000 at 16% coupon rate $200,000 at 17% coupon rate Common stock 4,000 shares 2,000 shares a. Calculate two EBIT-EPS coordinates for each of the structures by selecting any two EBIT values and finding their associated EPS values. 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 $75,000, which structure would you recommend? Why? What if the tax rate is higher, say 40%? -StructureA - Sinucture B 10 కర్మింం EBIT EPS 8. 48000 కక S2,000 54,00 S6, 00

Essentials Of Investments
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
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I need help with the last two subsets (d and e). I have created a chart for the EBIT-EPS coordinates. 

P13-22 EBIT-EPS and capital structure Data-Check is considering two capital structures. The key information is shown in the following table. Assume a 21% tax rate. Source of capital Structure A Structure B Long-term debt $100,000 at 16% coupon rate $200,000 at 17% coupon rate Common stock 4,000 shares 2,000 shares a. Calculate two EBIT-EPS coordinates for each of the structures by selecting any two EBIT values and finding their associated EPS values. 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 $75,000, which structure would you recommend? Why? What if the tax rate is higher, say 40%?
Transcribed Image Text:P13-22 EBIT-EPS and capital structure Data-Check is considering two capital structures. The key information is shown in the following table. Assume a 21% tax rate. Source of capital Structure A Structure B Long-term debt $100,000 at 16% coupon rate $200,000 at 17% coupon rate Common stock 4,000 shares 2,000 shares a. Calculate two EBIT-EPS coordinates for each of the structures by selecting any two EBIT values and finding their associated EPS values. 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 $75,000, which structure would you recommend? Why? What if the tax rate is higher, say 40%?
-StructureA - Sinucture B 10 కర్మింం EBIT EPS 8. 48000 కక S2,000 54,00 S6, 00
Transcribed Image Text:-StructureA - Sinucture B 10 కర్మింం EBIT EPS 8. 48000 కక S2,000 54,00 S6, 00
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