the have 2 plans to finance it.
EBIT = 1M * $20 – 0 (No Interest Expense) = $20M
EBIT for Plan B:
EBIT = 6M (Debt) + 10% interest*6M*(1-50%)= $3.6M
The EBIT EPS indifference point is the break even point between using Debt or Equity to finance a project. This can be calculated by dividing the EBIT of equity financing by the total number of shares issued ($20 million/1 million):
$20 Million/$1 Million= $20
Therefore, at an EPS of greater than $20, it would make sense to use Equity Financing; below this level, it would be more beneficial to use Financial Leverage with Debt.