Roberts Co. Ltd currently has 1,000,000 shares outstanding and no debt or preference shares. The company is trying to raise $10,000,000 capital and decide how best to finance a proposed capital investment. There are two plans in consideration. Under Plan I, the project will be financed entirely with long-term 9% debt. Under Plan II, ordinary shares will be sold at a market price $20 per share. The corporate tax rate is 30%.

Required:

a. If EBIT is expected to be $3,100,000, calculate the EPS for each financing plan. (8 marks) b. Calculate the break-even level (crossover point) of EBIT associated with the two financing plans. (4 marks)