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Unformatted text preview: (x axis) on separate sets of axes, and comment on the return and
risk relative to capital structure.
g. Using the EBIT–EPS data developed in part d, plot the 0, 30, and 60% capital
structures on the same set of EBIT–EPS axes, and discuss the ranges over which
each is preferred. What is the major problem with the use of this approach?
h. Using the valuation model given in Equation 12.12 and your findings in part
e, estimate the share value for each of the capital structures being considered.
i. Compare and contrast your findings in parts f and h. Which structure is preferred if the goal is to maximize EPS? Which structure is preferred if the goal
is to maximize share value? Which capital structure do you recommend?
Explain. CHAPTER 12 CASE Evaluating Tampa Manufacturing’s Capital Structure T ampa Manufacturing, an established producer of printing equipment,
expects its sales to remain flat for the next 3 to 5 years because of both a
weak economic outlook and an expectation of little n...
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