Question

Integrative-Optimal capital structure Medallion Cooling Systems, has total assets of $9,100,000, EBIT of $2,040,000, and preferred dividends of $198,000 and is taxed at a rate of 40%. In an effort to determine the optimal capital structure, the firm has assembled data on the cost of debt, the number of shares of common stock for various levels of indebtedness, and the overall required return on investment:

a.

Debt Ratio		0%
EBIT	$
Less: Interest	$
EBT	$
Taxes @40%	$
Net profit	$
Less: Preferred dividends	$
Profits available to
common stockholders	$
# shares outstanding	$
EPS	$

Calculate the EPS​ below: ​ (Round to the nearest dollar. Round the EPS to the nearest​ cent.)

Debt Ratio		15%
EBIT	$
Less: Interest	$
EBT	$
Taxes @40%	$
Net profit	$
Less: Preferred dividends	$
Profits available to
common stockholders	$
# shares outstanding	$
EPS	$

Calculate the EPS​ below:  ​(Round to the nearest dollar. Round the EPS to the nearest​ cent.)

Debt Ratio		30%
EBIT	$
Less: Interest	$
EBT	$
Taxes @40%	$
Net profit	$
Less: Preferred dividends	$
Profits available to
common stockholders	$
# shares outstanding	$
EPS	$

Calculate the EPS​ below:  ​(Round to the nearest dollar. Round the EPS to the nearest​ cent.)

Debt Ratio		45%
EBIT	$
Less: Interest	$
EBT	$
Taxes @40%	$
Net profit	$
Less: Preferred dividends	$
Profits available to
common stockholders	$
# shares outstanding	$
EPS	$

Calculate the EPS​ below: ​ (Round to the nearest dollar. Round the EPS to the nearest​ cent.)

Debt Ratio		60%
EBIT	$
Less: Interest	$
EBT	$
Taxes @40%	$
Net profit	$
Less: Preferred dividends	$
Profits available to
common stockholders	$
# shares outstanding	$
EPS	$

Answer 1

Here is solution of your question. All the best

a) first calculate Interest Exp sest Ratio Total Dext Interst exp 15% 30°). 9100,000x. 15 - 1365,000 X-0.078 - 106,470. 9,100,000x.30 - 2730,000 x0.088 = 240,240, 45% 9,100,000.45% =4,095,000X0.118 = 483,210 60% 9,100,000x160% - 5,460,000 X0.149-813,540. Now Caiwlate EPS, 0% Partiwlar [ 15% | 3027200% 45% 1 60%. EB17 2,040,000 2,040,000 2,040,000 2,040,000 2,040,000 leur Intereut 106,470 240,240483,210 $13,540 EBT 2,040,000 1,983,530 1,799,760 195697901,226,460 www: Tax@ 40% 816,000 773.412 719,904 622,716 490,584 Nip 1,224,000 1,160,118 1079856 934074 735,876 lex: Prelend Div 198,000 198,000 198,000 198,000 198,000 Petit for shallodd 1026000 962118 881856 736074537876 Penulit ARVOJ4 Sharer 196,000 175,000 137,000 115,000 79.000 EPS 5 5 6 6 7 1 B) Po= EPS/rs. Partiwlar 0% 15% 30% 45% 60% EPS 1. R. 11.8 C 12.9 14.3 15.9 19.8 po 44.36 47.61 45.01 40,25 34.38 c) Optimal capital structure is 30% Debt & 70% equity. As at this deft 1 Equity Ratio the price of common en stock ü higheet as 45.01. 5