**Answer:**

**Part a. What will be the debt-to-equity ratio if it borrows $200,000?
**

25%

**Part b. If earnings before interest and tax (EBIT) are $110,000, what will be earnings per share (EPS) if Reliable borrows $200,000?
**

$11.25 or 1125 cents

**Part c. What will EPS be if it borrows $400,000?**

$11.67 or 1167 cents

**Explanation:**

**Part a. What will be the debt-to-equity ratio if it borrows $200,000?
**

If it Borrows **$200,000 **then**, debt will Increase by $200,000 **and** Shares will decrease by $200,000** since they would be bought back under this option

Debt-to-equity ratio measures the extent to which Foreign Money is used by the Company

Debt-to-equity ratio = Total Debt / Total Equity

= $200,000/ $1,000,000 - $ 200,000

= $200,000/$800,000

= 25%

**Part b. If earnings before interest and tax (EBIT) are $110,000, what will be earnings per share (EPS) if Reliable borrows $200,000?
**

**Earnings per share (EPS**) = Earnings Attributable to Ordinary Shareholders/ Weighted Average Number of Ordinary Shares in Issue during the period

=( $110,000 - $200,000×10%)/ ($800,000/$100)

= $110,000-$20,000/8,000

= $11.25 or 1125 cents

**Part c. What will EPS be if it borrows $400,000?**

If it borrows **$400,000 then, **it pursues the** High -Debt Plan **and** exchanges debt for equity**

**Earnings per share (EPS**) = Earnings Attributable to Ordinary Shareholders/ Weighted Average Number of Ordinary Shares in Issue during the period

= ( $110,000 - $400,000×10%)/ ($1,000,000-$400,000/$100)

= $70,000 / 6,000

= $11.67 or 1167 cents