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

Stock Plan

EBIT

Less Intrest Expense

Earnings Before Taxes

Less Taxes at 38%

Net Income

Number of Common Shares

EPS
asked Apr 21, 2014 in Word Problem Answers by anonymous

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1 Answer

answered Jan 9 by Mathical Level 10 User (55,420 points)
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