Hi Grade Regulator Company currently has 100,000 shares of common stock outstanding with a market price of $60 per share. It also has $2 million in 6 percent debt. The company is considering a $3 million expansion program that it can finance with (1) all common stock at $60 a share, (2) straight bonds at 8 percent interest, (3) preferred stock at 7 percent, or (4) half common stock at

$60 per share and half 8 percent bonds.

a. For a hypothetical EBIT level of $1 million after the expansion program, calculate the earnings per share for each of the alternative methods of financing. Assume a corporate tax rate of 50 percent.

b. Construct an EBIT-EPS chart. What are the indifference points between alternatives? What is your interpretation of them?