Calculate two ebiteps coordinates for each of the

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Unformatted text preview: 8,000 shares 10,000 shares a. Calculate two EBIT–EPS coordinates for each of the structures by selecting any two EBIT values and finding their associated EPS values. b. Graph the two capital structures on the same set of EBIT–EPS axes. c. Discuss the leverage and risk associated with each of the structures. d. Over what range of EBIT is each structure preferred? e. Which structure do you recommend if the firm expects its EBIT to be $35,000? Explain. LG6 11–17 Optimal capital structure Nelson Corporation has collected the following data associated with four possible capital structures. Capital structure debt ratio 0% Expected EPS Estimated coefficient of variation of EPS $1.92 .4743 20 2.25 .5060 40 2.72 .5581 60 3.54 .6432 The firm’s research indicates that the marketplace assigns the following required returns to risky earnings per share. CHAPTER 11 Leverage and Capital Structure Coefficient of variation of EPS Estimated required return, ks .43 15% .47 16 .51 17 .56 18 .60 22 .64 45...
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