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Reliable Gearing currently is all-equity-financed. It has 16,000 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 $350,000 with the proceeds used to buy back stock. The high-debt plan would exchange $400,000 of debt for equity. The debt will pay an interest rate of 10.6%. 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 $120,000 or $175,000, 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 Earnings Per Share EBIT Low-Debt Plan High-Debt Plan $120,000 $ $ $175,000 b-2. 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.) Earnings Per Share Low-debt plan $ High-debt plan b-3. Is the high-debt mix preferable? No Yes c. Suppose that EBIT is $169,600. What is EPS under each financing mix? (Round your answers to 2 decimal places.) Earnings Per Share Low-debt plan $ High-debt plan
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