EBIT-EPS analysis ABe Forester and three of his friends from college have interested a group of venture capitalists in backing their business idea. The propsed operation would consist of a series of retail outlets to distrubute and service a full line of vacuum cleaners and accessories. These stores would be located in dallas, houston, and san antonio. to finance the new ventrue tow plans have been proposed.
Plan A is an all common equity stuructr in which 2.3 million dollars would be raised by selling 84,000 share of common stock.
Plan B would involve issuing a 1.3 million dollars in long term bonds with an effective interest rate of 11.5% plus 1.0 million would be raised by selling 43,000 shares of common stock.
The debt funds raised under plan b have no fixed maturity date, in that this amount of financila leverage is considered a permanent part of the firsm captial strucutre. Abe and his partners plan to use a 34% tax rate in their analysis and they have hired you on a consluting baisis to do the following.
A find the
EBIT indifference level assoicate with the two financial plans.
B. prepare a pro forma income statement for the EBIT level solved for Part a. that show the EPS will be the same regardless whether plan a or plan b is chosen.
A find the EBIT indifference level assoicated with the two financing plans.
The EBIT indifference level associated with the two financing plans is $___ round to the nearest dollar