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Capital structure equations

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November 13th, 2022

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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