EBIT-EPS and capital structure Data-Check is considering two capital structures.
ID: 2762905 • Letter: E
Question
EBIT-EPS and capital structure Data-Check is considering two capital structures. The key information is shown in the following table. Assume a 40% tax rate. Calculate two EBIT-EPS coordinates for each of the structure by selecting any two EBIT values and finding their associate EPS values. Plot the two capital structures on a set of EBIT-EPS axes. Indicate over what EBIT ranges, if any, each structure is preferred. Discuss the leverage and risk aspects of each structure. If the firm is fairly certain that its EBIT will exceed $76,000, which structure would you recommend? why? Calculate two EBIT-EPS coordinates for each of the structure by selecting any two EBIT values and finding their associates EPS values. Complete the tables below using $50,000 and $60,000 EBIT: (Round to the nearest dollar. Round the EPS to the nearest cent.)Explanation / Answer
Structure A
EBIT 50000
Less Interest 93000*15.6%=14508
Net PBT 35492
Less Taxes@40% 14196.8
PAT 21295.2
EPS 21295.2/5000= 4.26
Structure B EBIT 60000 Less Interest 16.6%*186000 30876 net PBT 29124 taxes 40% 11649.6 PAT 17474.4 EPS 17474.4/2500 7.0Related Questions
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