| [THREAD HIDDEN]|
How to figure out EBIT-EPS
Asked Apr 26, 2008, 02:31 PM
I am so confused about how to solve the following problems in my Financial Mgmnt class.
If anyone is an expert in accounting please help me figure it out.
Problem 12.2 (EBIT-EPS Analysis) Two inventive Entrepreneurs have interested a group of venture capitalists in backing a new business project.
Plan A: is an all Common-Equity Structure. $5 million would be raised by selling 160K shares of common stock.
Plan B: would involve the use of Long-Term Debt financing. $3 million would be raised by marketing bonds with an effective interest rate of 14%. Under the alternative, another $2 million would be raised by selling 64k shares of common stock. The Debt Funds under Plan B are considered to have not fixed maturity date, because this portion of Financial Leverage is thought to be a permanent part of the companyís capital structure.
With both plans $5 million would be needed to launch the new firmís operations.
a. Find the EBIT indifference level with the two financing proposals. :confused:
b.Prepare Income statements for the two plans that proves EPS will be the same regardless of the plan chosen at the EBIT level found in part a. :confused: