Question

The corporate capital structure consists of $ 1,400,000 debt (12% interest), $ 500,000 preferred stock with 8% dividend, and 30,000 ordinary shares. The company is currently considering an expansion that is estimated to require $ 2,250,000 in funding. To fund the expansion plan, the company has two alternative funding structures. The first alternative is a $ 1,250,000 bank debt composition with 12% interest and the rest is obtained from new ordinary shares @ $ 40 per sheet. Meanwhile, the second alternative consists of a $ 750,000 bank loan with 12% interest, plus a $ 750,000 preferred stock with an 8% dividend, and the rest of the new ordinary stock @ $ 40 per sheet.

If the tax rate is 25%, calculate the magnitude of the EBIT indifference point for both funding alternatives and calculate the magnitude of the EPS!