1. Assume the ABC Company has an all-equity capital structure of $8 million and plans a major expansion that will require $2 million. The company currently has earnings before interest and taxes (EBIT) of $1 million and 200,000 common shares outstanding. No taxes are payable. ABCs current earnings per share (EPS) are $5 ($1 million /200,000 shares), and return on equity (ROE) is 12.5% ($1 million profit/ $8 million in capital). The company is considering raising the required funds by either selling common stock or issuing debt. An additional 50,000 common shares could be sold at $40 per share, while debt would require interest at 5%, or $100,000 per year. Assume EBIT of $1.2 million. Use financial leverage analysis to compare equity and debt alternatives to raise the additional capital.