Reliable Gearing currently is all-equity-financed. It has 16000 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 $350000 with the proceeds used to buy back stock. The
high-debt plan would exchange $400000 of debt for equity. The debt will pay an interest rate of 10.6%. The firm pays no taxes.

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

If earnings before interest and tax (EBIT) will be either $120000 or $175000 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

If both scenarios are equally likely what is expected (i.e. average) EPS under each financing mix?(Do not
round intermediate calculations. Round your answers to 2 decimal places.)

Suppose that EBIT is $169600. What is EPS under each financing mix? (Round your answers to 2 decimal
places.)