Once the expansion is completed, the sales are expected to increase to $5,000,000. Calculate the new EBIT at this level of sales. At the new EBIT which method of financing results in a higher EPS? Calculate EPS for both plans at this new EBIT.

The company has decided to change Plan 1. Instead of issuing $400,000 in new common shares, the company will fund the project with $200,000 in common shares and $200,000 in preferred shares with a dividend of 3%. Plan B will remain the same. What will be the new indifference EBIT (EBIT*)?

Irish Creek Distillery Limited is a levered firm with the following financial statements: Balance Sheet Income Statement Total assets $ 1,000,000 Bonds (coupon rate of 8%) Bonds (coupon rate of 6%) Common stock (50,000 o/s) Retained earnings $ 200,000 $ 300,000 $ 250,000 $ 250,000 Sales Variable costs Fixed costs Depreciation EBIT Interest EBT Taxes (40%) NI $ 3,500,000 -$ 1,200,000 -$ 1,000,000 -$ 600,000 $ 700,000 ?? ?? ?? ?? Total liability $ 1,000,000 Irish Creek Distillery Limited is a levered firm with the following financial statements: Balance Sheet Income Statement Total assets $ 1,000,000 Bonds (coupon rate of 8%) Bonds (coupon rate of 6%) Common stock (50,000 o/s) Retained earnings $ 200,000 $ 300,000 $ 250,000 $ 250,000 Sales Variable costs Fixed costs Depreciation EBIT Interest EBT Taxes (40%) NI $ 3,500,000 -$ 1,200,000 -$ 1,000,000 -$ 600,000 $ 700,000 ?? ?? ?? ?? Total liability $ 1,000,000