EBIT–EPS and preferred stock Litho-Print is considering two possible capital structures, A and B,… 1 answer below »


EBIT–EPS and preferred store Litho-Print is because two feasible chief erections, A and B, shown in the forthcoming board. Assume a 40% tax reprove.

Source of chief

Structure A

Structure B

Long-term debt

$75,000 at 16% coupon reprove

$50,000 at 15% coupon reprove

Preferred store

$10,000 after a while an 18% annual dividend

$15,000 after a while an 18% annual dividend

Common store

8,000 shares

10,000 shares

a. Calculate two EBIT–EPS coordinates for each of the erections by selecting any two EBIT values and sentence their associated EPS values.

b. Graph the two chief erections on the corresponding set of EBIT–EPS axes.

c. Discuss the leverage and promote associated after a while each of the erections.

d. Over what concatenate of EBIT is each erection preferred?

e. Which erection do you approve if the resolute expects its EBIT to be $35,000? Explain.