Problem #2 (22 marks) The House of Cars Inc. is considering a new investment that will cost $5,000,000 and is expected to increase the company's annual operating earnings (EBIT) by $1,000,000 per year from the current level of $1,750,000 to $2,750,000. The company can raise the $5,000,000 by (1) selling 50,000 shares of common stock at $100 each or, (2) selling bonds with a coupon rate of 8.5% that will net the company $5,000,000. The tax rate is 40%. Below is information on the company's existing capital structure: Existing Capital Structure Debt - Bonds 8% coupon Common Stock Total Liabilities & Owners Equity Total common shares outstanding Book Value $6,000,000 11,250,000 $17,250,000 150,000 a. If EBIT is only $2,000,000, which plan will result in the highest EPS? Show your work. (4 marks) b. If EBIT is $2,750,000, which plan will result in the highest EPS? Show your work. (4 marks) C. Calculate the breakeven EBIT for each plan. (2 marks) d. At what level of EBIT will the company be indifferent between the 2 plans? (4 marks)