Plan A: is an all common equity structure in which $2.1 million dollars would be raised by selling common stock @ $20 per share
Plan B: would involve the use of financial leverage. $1.4 million dollars would be raised by selling bonds w/ an effective interest rate at 10.7% (per annum) and the remaining would be raised by selling the common stock @ $20 per share. The use of the financial leverage is considered to be a permanent part of the firm’s capitalization, so no fixed maturity date is needed for the analysis. A 30% tax rate is deemed appropriate for this analysis.
Question A: Find the EBIT indifference level associated with the two financing plans. (Round to the nearest dollar)
The EBIT indifference level associated with the two financial plans is what $? (Round to nearest dollar)
b. a detailed financial analysis of the firms prospects suggests that the long term EBIT will be above $336,000 annually. Taking this into consideration, which plan will generate the higher EPS? (round to the nearest dollar)