Problem 16-14 Earnings and Leverage (LO1)Reliable Gearing currently is all-equity-financed. It has 12 000 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 $210 000 with the proceeds used to buy back stock. The high-debt plan would exchange $500 000 of debt for equity. The debt will pay an interest rate of 9.8%. 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 RatioLow-debt plan High-debt plan b-1. If earnings before interest and tax (EBIT) will be either $65 000 or $185 000 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 ShareEBIT Low-Debt Plan High-Debt Plan$65 000 $ $$185 000 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 ShareLow-debt plan $High-debt plan b-3. Is the high-debt mix preferable?YesNoc. Suppose that EBIT is $117 600. What is EPS under each financing mix? (Round your answers to 2 decimal places.)Earnings Per ShareLow-debt plan $High-debt plan
