ABC Company has a total asset of $400000 of which 30% is debt with 12% interest and 70% is equity. This is the current capital structure and ABC earns EBIT of $40000. The company planned to get involved in investment of $100000 that would increase his current income from $40000 to $60000. To mobilize $100000 required for the investment two options are available.

1) Issuing shares of 1000 each worth $100

2) Selling bond costing $100000 that bears interest rate of 12.5%

Assuming there is no preferred stock in capital structure

A) Determine optimal capital structure

B) Calculate degree of Financial Leverage for 50% tax rate

C) Calculate EBIT and EPS at break even point

D) Decide whether plan A or plan B is better