An EBIT-EPS Indifference Chart for Rail Shipping Inc

Multiple Choice

An EBIT-EPS indifference chart for Rail Shipping Inc. indicates a breakeven point occurs at EBIT of $100 million. If the company issues shares to finance an expansion, EBIT will be $20 million below the indifference point. If bonds are issued, EBIt will be $30 million below the indifference point. What is the most appropriate conclusion to draw from this data?

A) EBIT would have to increase 20% before issuing shares is a better alternative.
B) EBIT would have to increase 25% before issuing bonds is a better alternative.
C) EBIT would have to increase 30% before issuing shares is a better alternative.
D) EBIT would have to increase 43% before issuing bonds is a better alternative.
E) EBIT would have to increase 50% before issuing shares is a better alternative.