Playmore systems has 100,000 shares of common stock outstanding with a market price of $60 per share. It also has $2,000,000 (par value) in 6% coupon bonds outstanding. The firm is considering a $3 million expansion program that can be financed employing: 1) Preferred stock sold at par value with a 7% cash dividend. 2) Half common stock (sold at $60 per share) and half with 8% bonds (sold at par). The firm has a tax rate of 40% a) What is the indifferent EBIT between the two plans? b) Suppose the firm has forecasted EBIT as follows: Probability of event .10 .40 .50 EBIT $1,000,000 $1,500,000 $1,200,000 Which financing option should they select based on the expected level of EBIT?