# Capital structure equations

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Use the following information to answer the question . Assume a tax rate of 40%.

Current Capital Structure Proposed Capital Structure

Assets: $15 million $15 million

Debt: $0 $ 6 million

Equity: $15 million $ 9 million

Common Share Price: $25.00 $ 22.50

Shares Outstanding: 600,000 ???

Coupon Rate: --- 4%

Preferred Dividend Yield: --- 10%

At what level of EBIT are the EPS of the two Capital Structures equal?

a) $2,220,000

b) $1,800,000

c) $1,500,000

d) $720,000

e) More information is needed

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Capital structure equations are solved.

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1. At what level of EBIT are the EPS of the two Capital Structures equal?

a) $2,220,000

b) $1,800,000

c) $1,500,000

d) $720,000

e) More information is needed

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