Question 08 : Newcap Led has an ordinary share capital of 400, 000 shares fully paid to $1 and a 10%^ preference share capital of 100 , 000 shares fully paid to $1. Additional funds of $600, 000 are required for expansion . The company is considering introducing some debt funds to it's capital structure and wants you to evaluate the effects on earnings per share of the following alternatives :" a ) Issue Googoo fully paid ordinary shares for $1 each. 6 ) Issue 300000 fully paid ordinary shares for $ 1 each and $300 , 000 15% debentures . [ ) Issue $ 600, 000 15% debentures . Required : Calculate* 1 . The degree of financial leverage for the alternatives ( a ) , ( 6 ) and ( c ). 11 . At what levels of earning's before interest and tax would Newcap Led be indifferent as to the choice between alternative ( a ) and ( c ) ? Show calculation in order to prove it . Earning's before interest and taxes ( EBIT ) are expected to be $400, 000 with a company tax rate of 27 . 5^