Investments Inc. currently has $$3\mathrm{.}5$ million in debt outstanding, bearing in interest rate of $12\mathrm{.}3\%.$ It

wishes to finance a $$5$ million expansion program and is considering five alternatives. The preferred stock dividend will be $12\%$ and the price of common stock will be $$18$ per share. The

company currently has $750,000$ shares of common stock outstanding and is in $40\%$ tax bracket. a$.$ If the earnings before interest and taxes are $$1\mathrm{.}5$ million, what would be earning per share for

five alternatives, assuming no immediate increase in the operating profit. Compute the degree of financial leverage $($DFL$)$ for each alternatives at the expected EBIT level

of $$1\mathrm{.}5$ million.

Which alternative do you prefer and why?