Assume that Company 1 has no debt and 400 shares of stock outstanding while Company 2 has $5000 in debt at an annual interest rate of 10% and 200 shares of stock outstanding. Assuming no taxes, calculate the break-even EBIT as follows:

1)Set the EPS of the two firms equal to each other, cross multiply and solve for the EBIT that makes the EPS the same for both firms.