Christian Dior S.A. is a successful family business with its famous fashion and perfume brands. It’s latest effort in growing the business involves opening a series of international outlets to distribute its famous fashion and perfume lines in high-traffic cities in Latin America such as Panama City, Bogota, Sao Paulo, and Buenos Aires. The company has proposed two financing plans. Plan A is an all common equity structure. Six million dollars would be raised by selling 150,000 shares of common stock. Plan B would involve the use of long-term debt financing. Four million dollars would be raised by marketing bonds with an effective interest rate of 10 percent. Under Plan B, another \($2\) million would be raised by selling 40,000 shares of common stock. With both plans, \($6\) million is needed to launch the Latin America operations. The debt funds raised under Plan B are considered to have no fixed maturity date because this portion of financial leverage is thought to be a permanent part of the company’s capital structure. The company has decided to use a 21 percent marginal tax rate in its analysis, and it has hired you on a consulting basis to do the following:

a. Find the EBIT indifference level associated with the two financing proposals.

b. Prepare the income statement for the two plans that prove EPS will be the same regardless of the plan chosen at the EBIT level found in part (a).