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As the CFO of Pelican Holdings, you must choose between the following two capital structures:
1. Debt with a face value of $500 million and 40 million ordinary shares.
2. Debt with a face value of $400 million and 44 million ordinary shares.
The debt pays interest of 5% p.a. with annual compounding, in both cases. Answer the following questions, given that the corporate tax rate is 30%.
Question 1: What is Pelician's EPS under the first structure, it it's EBIT is $90 million?
Question 2: What is Pelician's EPS under the second structure, it it's EBIT is $90 million?
Question 3: What is Pelican's breakeven EBIT?
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