EBIT—EPS and preferred stock ​ Litho-Print is considering two possible capital​ structures, A and​ B, shown in the follo

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EBIT—EPS and preferred stock ​ Litho-Print is considering
two possible capital​ structures, A and​ B, shown in the
following table. Assume a 40% tax rate.
Source of capital
Structure A
Structure B
​Long-term debt
$72,000 at 15.9% coupon rate
$47,000 at 14.9% coupon rate
Preferred stock
$12,000 with an annual dividend of
17.5%
$17,000 with an annual dividend of
17.5%
Common stock
8,000
10,000
a. Calculate two​ EBIT-EPS coordinates for each of the
structures by selecting any two EBIT values and finding their
associated EPS values.
b. Graph the two capital structures on the same set
of​ EBIT-EPS axes.
c. Discuss the leverage and risk associated with each of the
structures.
d. Over what range of EBIT is each
structure​ preferred?
e. Which structure do you recommend if the firm expects its EBIT
to be greater than $44,000​? Explain.