Integrative-Optimal capital structure Medallion Cooling Systems, Inc., has total assets of $9,300,000, EBIT of $1,950,000, and preferred dividends of $204,000 and is taxed at a rate of 40%. In an effort to determine the optimalcapital structure, the firm has assembled data on the cost of debt, the number of shares of common stock for variouslevels of indebtedness, and the overall required return on investment:
capital structure debt ratio cost of debt r d number of common stock shares required return rs
0% 0% 198,000 12,2%
15 7.8 169.000 13.2
30 9.2 144,000 13.9
45 11.9 114,000 16.1
60 15.1 76,000 19.9
a. Calculate earnings per share for each level of indebtedness.
