6. In addition to valuation estimates, most managers are also concerned with the impact of
financial leverage on the firm’s earnings per share (EPS) and weighted average cost of capital
(WACC).
a. Calculate the EPS at each debt level, assuming that Kleen Kar begins with zero debt and
raises new debt in a single issue.
b. Is EPS maximized at the same debt level that maximizes stock price?
c. Calculate the WACC at each debt level.
d. What are the relationships between the amount of debt, stock price, and WACC?