Attractive Fashion Ltd is planning to expand its clothes manufacturing plant, which is expected to generate a permanent increase in EBIT of $300,000 per annum. Current EBIT is $600,000. Attractive Fashion Ltd currently has a capital structure that utilizes bonds, ordinary equity,and preference shares. The $2,000,000 of issued bonds pays 8% per annum. 37,500 issued preference shares have a market value of $50 each with an annual fixed dividend of 10%.250,000 ordinary shares have been issued and are trading at $10 per share. The company tax rate is 20%.

a)Attractive Fashion Ltd needs to raise $1,000,000 to go ahead with this expansion. Assuming the company can issue new ordinary shares at the current market price. What is the impact on EPS if new shares are issued to fund the expansion? 

b)If new debt can be raised at 10% interest rate, what is the impact on EPS of using debt rather than a new equity issue?

c)Calculate the EPS indifference point of New Equity plan and New Debt Plan