Pierce Grain Breakeven EBIT Question.

A balance sheet and income statement for the Pierce Grain Company as it exists today is shown below under the heading Existing Capital Structure. The company can make a capital investment of $50,000 which raises EBIT to $30,000. The firm can raise the cash by selling 500 shares at $100 per share or selling new bonds that will net the firm $50,000 and carry an interest rate of 8.5%. The balance sheet and income statement for these two options are under the heading With New Common Stock Financing and With New Debt Financing. Based on a criterion of selecting the financing plan that will provide the highest EPS, the bond alternative is favored if EBIT is $30,000. At what level of EBI does stock financing become more attractive?

(EBIT-4000)/2000=(EBIT-8250)/1500 EBIT=21000