Problem #4 (16 marks) Harden Hardware Limited is considering a change to its current capital structure. The current capital structure (Plan I) is all equity with 210,000 common shares outstanding. Under Plan II, the company would issue debt to buy back shares, leaving 150,000 shares of common stock outstanding and $2,280,000 in debt at an interest rate of 8%. The tax rate is 40%

a) If EBIT is $500,000, Which plan will result in the highest EPS? Show your work. (4 marks)

b) If EBIT is $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) Calculate the indifference EBIT (4 marks) e) Calculate EPS for each plan at this level of EBIT (2 marks)