Byers Company has a current capital structure consisting of $300 million in long-term debt with an interest rate of 6.5% and $800 million in common equity (50 million shares). The firm is considering an expansion plan costing $48 million. The expansion plan can be financed with additional long-term debt at an 8.50% interest rate or the sale of new common stock at $16 per share. The firms marginal tax rate is 30%.

1. Determine the indifference level of EBIT for the two financing plans.

2. If the firm's actual EBIT is expected to be $80 million, which plan should the firm prefers from EPS perspective?