Reliable Gearing currently is all-equity-financed. It has 27,000 shares of equity outstanding, selling at $100 a share. The firm is considering a capital restructuring. The low-debt plan calls for a debt issue of $370,000 with the proceeds used to buy back stock. The high-debt plan would exchange $570,000 of debt for equity. The debt will pay an interest rate of 12%. The firm pays no taxes.
a. What will be the debt-to-equity ratio if it borrows $370,000? (Round your answer to 2 decimal places.)
b. If earnings before interest and tax (EBIT) are $280,000, what will be earnings per share (EPS) if Reliable borrows $370,000? (Round your answer to 2 decimal places.)
c. What will EPS be if it borrows $570,000? (Round your answer to 2 decimal places.)