3- CD is an all equity firm that has 10,000 shares of stock outstanding at a market price of $20 a share. The firm's management has decided to issue $50,000 worth of debt and use the funds to repurchase shares of the outstanding stock. The interest rate on the debt will be 5 percent.

a. What are the earnings per share at the break-even level of earnings before interest and taxes? Ignore taxes.

Draw a graph with EPS on the vertical axis and EBIT on the horizontal axis for the all equity company and the company with leverage. Show on the graph the break-even level of earnings for the two financing alternatives.