(Answered) Trueware corporation is a start-up firm that has a capital

Finance

Trueware Corporation is a start-up firm that has a capital structure that calls for a debt/assets ratio of 0.25. The firm has two possible scenarios for its operations: Ruby or Emerald.

The Ruby scenario has a 70 percent probability of occurring and forecast earnings before interest and taxes (EBIT) in this state is $80,000. The Emerald state has a 30 percent chance of occurring and the EBIT is expected to be $32,000.

Further, the cost of debt for this capital structure will be 10 percent. The firm will have $500,000 in total assets and it will face a marginal tax rate of 30 percent. The company has 22,000 outstanding shares. Calculate the difference in EPS for the capital structure.?

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