13-22 EBIT-EPS and capital structure Geniaware is considering two capital structuresThe key information is shown in the following table. Assume a 24% tax rateSource of capitalStructure AStructure BLong-term debt€75,000 at 16% coupon rate€50,000 at 15% coupon rateCommon stock8,000 shares10,000 sharesa. Calculate the EBIT-EPS coordinates for each of the structures for EBIT values of€30,000 and €50,000 with 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 €55,000, which structurewould you recommend? Why?Alban

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13-22 EBIT-EPS and capital structure Geniaware is consideri The key information is shown in the following table. Assume a 24% tax rate capital structures. Source of capital Structure A Structure B Long-term debt €75,000 at 16% coupon rate €50,000 at 15% coupon rate Common stock 8,000 shares 10,000 shares a. Calculate the EBIT-EPS coordinates for each of the structures for EBIT values o €30,000 and €50,000 with 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 €55,000, which structure would you recommend? Why?

13-22 EBIT-EPS and capital structure Geniaware is consideri The key information is shown in the following table. Assume a 24% tax rate capital structures. Source of capital Structure A Structure B Long-term debt €75,000 at 16% coupon rate €50,000 at 15% coupon rate Common stock 8,000 shares 10,000 shares a. Calculate the EBIT-EPS coordinates for each of the structures for EBIT values o €30,000 and €50,000 with 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 €55,000, which structure would you recommend? Why?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter12: Capital Structure

Section: Chapter Questions

Problem 9PROB

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