1. Eolop company now has an investment plan which needs $5m. The company has two financing proposals. Plan A is to borrow $2m at 10% and $3m will need to sell stocks at $50 per common share. Plan B would involve higher financial leverage. $1m would be raised by selling bonds with an effective interest rate of 10% and the remaining $4 million would be raised by selling a common stock at the $50 price per share. The fixed operating cost will be $800,000. The corporate tax rate is 40%.

   1. Find the EBIT indifference level associated with the two financing plans.

   2. Prepare an analytical EBIT-EPS analysis chart for this situation.

   3. If a detailed financial analysis project that long-term EBIT will be in the range of $0.8m to $1m annually, which plan will generate higher EPS?

   4. Please calculate DOL, DFL, and DCL at the point of EBIT being $1 million under plan B.

   5. Please describe the meaning of DOL, DFL, and DCL.