Brewing Company has calculated its indifference level of EBIT to be $600,000 between two competing capital structures one will add more debt to the firms current capital structure, and the other will raise capital through the sale of more common equity. Interest expense under the more levered capital structure is $400,000, and $200,000 under the less levered capital structure. The EBIT for Bartleybrau is expected to be $840,000, with a standard deviation of $380,000.

a-What is the probability that the equity financing option will be preferred?

b-What is the probability that the company will have positive earnings per share under the debt option?

c-Which capital structure do you recommend? Why