Southern Inc C Use Your Results to Point Out Two Conflicting Influences the $20,000,000

Southern Inc. has EBIT of $3,500,000, and total capital of $20,000,000 that is 15% debt. There are 1,700,000 shares of stock outstanding which sell at book value. The firm pays 10% interest on its debt and is subject to a combined state and federal tax rate of 40%. Southern plans to restructure its capital to 60% debt.
a. Make a simple calculation that indicates whether at the current level of profitability more debt will enhance results? Draw a conclusion in fifteen words or less.
b. Calculate EPS, and DFL at the current and proposed structures using the following worksheet:
($000 except for EPS, DFL and Shares)
$\begin{array}{lll}&\text {Current }&\text { Proposed}\\\text { EBIT }&\$3,500&\$3,500\\\text { Interest }&\_\_\_\_&\_\_\_\_\\EBT&\_\_\_\_&\_\_\_\_\\Tax&\_\_\_\_&\_\_\_\_\\\text { Net Income}&\_\_\_\_&\_\_\_\_\\DEBT&\_\_\_\_&\_\_\_\_\\EOUITY&\_\_\_\_&\_\_\_\_\\\text { TOT CAP } & \$ 20,000 & \$ 20,000 \\\text { SHARES } & 1,700,000 &\_\_\_\_\\EPS&\_\_\_\_&\_\_\_\_\\DFL&\_\_\_\_&\_\_\_\_\\\end{array}$
c. Use your results to point out two conflicting influences the change will have on stock price.