Power Engineering Berhad currently has RM 400,000 debt outstanding with 9% interest and 20,000 shares of common stock. Power Engineering Berhad wish to raise RM 1,000,000 to finance new project and considering two alternatives:

Plan A: This plan would involve the use of financial leverage. RM1,000,000 would be raised by selling bonds with an effective interest rate of 11 percent per annum.

Plan B: To have RM1,000,000 in equity by selling stock at RM25 per share. The companys corporate tax rate is 28%.

i. Calculate the indifference level of EBIT between the TWO (2) plans. Determine the EPS at that point.

ii. If EBIT is expected to be RM250,000, explain which financing plan should be selected.