The wonder company is considering two possible structures, A and B:

source of Capital structure A structure B

long term debt $75,000 at 16% $50,000 at 15 %

preferred stock $ 10,000 at 18% $15,000 at 18%

Common stock 8000 shares at $20 10,000 at 20$

their expected EBIT is 30,000

a) calculate the financial breakeven point, and the earnings per share for each structure assume a 40% tax rate on ordinary income

b) Graph the two capital structures on the same set EBIT- EPS axes.

c) Compute the degree of financial leverage with each structure.