A company has a capital of $ 1 billion consists of ordinary shares of 80,000 shares each for $ 10,000 and debt of $200 and interest of 4% pa. the company needs an additional fund of $ 200 million that will be fulfill by:

Alternative 1 : Issuance of new common shares

Alternative 2 : Adding debt, interest 6% p.a.

Then:

1. Calculate BREAK EVEN EBIT Assuming tax is 25%).

2. Prove the above calculation.

3. Draw the graph.

4. If the company's EBIT is $ 70 million, then which alternative is best? Why?