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# 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

##### Solution Summary

Capital structure equations are solved.

##### Solution Preview

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

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