You recently start a company to write and distribute software for various personal computers. The company's software products have been tested and displayed at several trade shows and computer fairs; twelve retail outlets have already been identified and are committed to purchase the software. All that is lacking for the next phase of the company's development is adequate financing. A small group of private investors is interested in providing finance and two financing proposals are being evaluated. The first (plan A) is an all-ordinary-share capital structure. Two million dollars would be raised by selling shares at $10 each. Plan B would involve the use of financial leverage. One million dollars would be raised selling bonds with an effective interest rate of 11% (per annum). Under this second plan, the remaining $1 million would be raised by selling shares at the $10 price per share. The use of financial leverage is considered to be a permanent part of the firm's capitalisation, so no fixed maturity date is needed for the analysis. A 34% tax rate is appropriate for the analysis. a) Find the EBIT indifference level associated with the two financing plans using an EBIT-EPS graph. Check your results algebraically. b) A detailed financial analysis of the firm's prospects suggests that the long-term EBIT will be above $280,000 annually. Taking this into consideration, which plan will generate the higher EPS? c) Briefly explain what is the primary weakness of EBIT-EPS analysis as a financing decision tool