The firms total assets of 1 million are assumed to be

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Unformatted text preview: under consideration. Capital structure debt ratio 0% Before-tax cost of debt, kd 0.0% Required return, ks 10.0% 15 8.0 10.5 30 10.0 11.6 45 13.0 14.0 60 17.0 20.0 a. Calculate the level of EBIT associated with each of the three levels of sales. b. Calculate the amount of debt, the amount of equity, and the number of shares of common stock outstanding for each of the capital structures being considered. CHAPTER 12 Leverage and Capital Structure 555 c. Calculate the annual interest on the debt under each of the capital structures being considered. (Note: The before-tax cost of debt, kd, is the interest rate applicable to all debt associated with the corresponding debt ratio.) d. Calculate the EPS associated with each of the three levels of EBIT calculated in part a for each of the five capital structures being considered. e. Calculate (1) the expected EPS, (2) the standard deviation of EPS, and (3) the coefficient of variation of EPS for each of the capital structures, using your findings in part d. f. Plot the expected EPS and coefficient of variation of EPS against the capital structures...
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