HiLo, Inc., doesn't face any taxes and has $256.8 million in assets, currently financed entirely with equity. Equity is worth $15 per share, and the book value of the equity is equal to the market value of the equity. Also, let's assume that the firm's expected values for earnings before interest and taxes (EBIT) depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities shown below: State Pessimistic Optimistic Probability of state 0.40 0.60 Expected EBIT in state $2,824,800 $18,104,400 The firm is considering switching to a 25-percent-debt capital structure and has determined that it would have to pay a 10 percent yield on perpetual debt in either event. What will be the level of expected EPS if the firm switches to the proposed capital structure? (Do not round intermediate calculations and round your final answer to two decimal places.)

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HiLo, Inc

Accounting Dec 18, 2020

HiLo, Inc., doesn't face any taxes and has $256.8 million in assets, currently financed entirely with equity. Equity is worth $15 per share, and the book value of the equity is equal to the market value of the equity. Also, let's assume that the firm's expected values for earnings before interest and taxes (EBIT) depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities shown below:

State	Pessimistic	Optimistic
Probability of state	0.40	0.60
Expected EBIT in state	$2,824,800	$18,104,400

The firm is considering switching to a 25-percent-debt capital structure and has determined that it would have to pay a 10 percent yield on perpetual debt in either event. What will be the level of expected EPS if the firm switches to the proposed capital structure? (Do not round intermediate calculations and round your final answer to two decimal places.)

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