finance ebiteps analysis

Abe Forrester and three of his friends from college have interested a group of venture capitalists in backing their business idea. The proposed operation would consist of a series of retail outlets to distribute 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 venture two plans have been proposed:

• Plan A is an all-common-equity structure in which $2.1 million dollars would be raised be selling 82,000 shares of common stock.

• Plan B would involve issuing $1.5 million dollars in long-term bonds with an effective interest rate of 12.3% plus $0.6 million would be raised by selling 40,000 shares of common stock. The debt funds raised under Plan B have no fixed maturity date, in that this amount of financial leverage is considered a permanent part of the firm’s capital structure.

Abe and his partners plan to use a 34% tax rate in their analysis, and they have hired you on a consulting basis to do the following:

a. Find the EBIT indifference level associated with the two financing plans.

b. Prepare a pro forma income statement for the EBIT level solved for in Part a. that shows that EPS will be the same regardless whether Plan A or B is chosen.

 
Looking for solution of this Assignment?

WHY CHOOSE US?

We deliver quality original papers

Our experts write quality original papers using academic databases.  

Free revisions

We offer our clients multiple free revisions just to ensure you get what you want.

Discounted prices

All our prices are discounted which makes it affordable to you. Use code FIRST15 to get your discount

100% originality

We deliver papers that are written from scratch to deliver 100% originality. Our papers are free from plagiarism and NO similarity

On-time delivery

We will deliver your paper on time even on short notice or  short deadline, overnight essay or even an urgent essay