EPS/EBIT Analysis for KKD

Amount Needed: $1,000,000,000

Tax Rate: 38%
Interest Rate: 5%
Stock Price: $25/share
Annual Dividend: $2/share
EBIT Range: $100M to $1B
Outstanding Shares: 60,000,000 shares

COMMON STOCK DEBT 50% STOCK 50% DEBT

EBIT 100M 1B 100M 1B 100M 1B

Interest (5%) 0 0 (50M) (50M) (25M) (25M)
EBT 100M 1B 50M 950M 75M 975M
Taxes(38%) (38M) (380M) (19M) (361M) (28.5M) (370.5M)
EAT 62M 620M 31M 589M 46.5M 604.5M
Dividends (120M) (120M) (120M) (120M) (120M) (120M)
EATD (58M) 500M (89M) 469M (73.5M) 484.5M
No. of shares 100M 100M 60M 60M 80M 80M
EPS -0.58 5 -1.48 7.82 -0.92 6.06

Conclusion: KKD should use Common Stock Financing to raise capital if it has an EBIT of $100,000,000.
On the other hand, it should use Debt Financing if it has an EBIT of 1,000,000,000.