Standard Deviation EPS

Coefficient of Variation EPS=
Expected EPS
1.14 / 0.18
Coefficient of Variation EPS =6.33

(c) 20% 60% 20%

$ $
EBIT ( $ 15,000 ) 15,000 45,000
Less: Interest 0 0 0
$ $
Earnings before taxes ( $ 15,000 ) 15,000 45,000

Less: Taxes ( 40% ) 6,000 6,000 18,000

$ $
Earnings after taxes ( $ 9,000 ) 9,000 27,000

Number of shares 15,000 15,000 15,000

$ $
Earnings per Share ( $ 0.60 ) 0.60 1.80

Expected EPS = ( - 0.60 x 0.20 ) + ( 0.60 x 0.60 ) + ( 1.80 x 0.20 )

Expected EPS = ( - 0.12 ) + 0.36 + 0.36
Expected EPS = $ 0.60

√ ¿Standard
¿ Deviation EPS
√ 0.288+0+ 0.288
√ 0.576
Standard Deviation EPS = $ 0.76

Coefficient of Variation
0.76 / 0.60
Coefficient of Variation = 1.27

(d) With Debt All Equity

$ $
Expected EPS 0.18 0.60
$ $
Standard Deviation EPS 1.14 0.76
$ $
Coefficient of Variation 6.33 1.27
Including debt in Tower Interiors’ capital structure brings about a lower expected EPS,
a higher standard deviation, and a lot higher coefficient of variation than the all-equity
structure. Eliminating debt from the company's capital structure significantly
decreases monetary risk which is estimated by the coefficient of variation.