Problem: Use the following information to answer 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%
1. At what level of EBIT are the EPS of the two Capital Structures equal?