Brooks Corporation is financed with $32 million of 9% debt and $68 million of common equity. The firm has 1 million shares of common stock outstanding. Brooks needs to raise $25 million and is...

Brooks Corporation is financed with $32 million of 9% debt and $68 million of common equity. The firm has 1 million shares of common stock outstanding. Brooks needs to raise $25 million and is undecided between two possible plans for raising this capital:



Plan A: Equity financing. Under this plan, common stock will be sold at $62.50 per share.



Plan B: Debt financing. Under this plan, 11% coupon bonds will be sold.


At what level of operating income (EBIT) will the firm be indifferent between the two plans? Assume a 34% marginal tax rate.