f earnings before interest and tax (EBIT) will be either $65,000 or $185,000, what will be earnings per share for each financing mix for both possible values of EBIT?

f earnings before interest and tax (EBIT) will be either $65,000 or $185,000, what will be earnings per share for each financing mix for both possible values of EBIT?

Reliable Gearing currently is all-equity-financed. It has 12,000 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 $210,000 with the proceeds used to buy back stock. The high-debt plan would exchange $500,000 of debt for equity. The debt will pay an interest rate of 9.8%. The firm pays no taxes.

a.
What will be the debt-to-equity ratio after each contemplated restructuring? (Round your answers to 2 decimal places.)

Debt-to-Equity Ratio
Low-debt plan
High-debt plan

b-1.
If earnings before interest and tax (EBIT) will be either $65,000 or $185,000, what will be earnings per share for each financing mix for both possible values of EBIT? (Round your answers to 2 decimal places.)

Earnings Per Share
EBIT Low-Debt Plan High-Debt Plan
$65,000 $ $
$185,000


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