Plan A is an all -common -equity structure in nwhich 2.3Million dollars would be raised by selling 84,000 shares of common stock.
Plan B would involve issuning 1.4 million dollars in longterm bonds with an effective intrest rate of 11.9% plus $0.9 million would be raised by selling 42,000 shares of common stock. The debt funds raised under plan nb has no fixed maturuty date in that it is the amount of financial leverage is considered [permanant. The tax rate is 38%
A) Find the EBIT indiffernce level associated with the two financing plans
B ) Prepare a pro forma income statement for the EBIT level solved for Part a that shows that EPS will be the same regardless wheather Plan A or B is chosen.
Find the EBIT indiffernce level associated with the two financing plans
Prepare a pro forma income statement for the Plan A
Less Intrest Expense
Earnings Before Taxes
Less Taxes at 38%
Number of Common Shares