Jimmy Pesto Company hasa currentcapitalstructure consisting of $25million in long-term debt withaninterest rate of 8%,$10million in preferred equity (1million shares) with an annual dividends of $1per share, and $100million in commonequity(5millionshares). The firm isconsideringan expansionplancosting $10million.Theexpansion plan can be financedwith additionallong-term debtat a 9.75%interest rateorthesale ofnew common stockat$25pershare. Thefirm's marginal tax rate is 30%.

1. Determine the indifference levelof EBITfor the two financing plans.

2.If the firm's actual EBIT is expected to be $19million, which plan should the firm prefers from EPS perspective?