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 2.3 million dollars would be raised by selling 84,000 shares of common stock. Plan B would involve issuing 1.1 million dollars in long term bonds with an effective interest rate of 11.7% plus a 1.2 million would be raised by selling 42,000 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 firms capital structure. Abe and his partners plan to use a 40% 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 Plan B is chosen

AMHD has a clear policy concerning not doing homework - which you read when you signed up.

I don't think Abe Forrester and his 3 friends are your friends so I'm concluding this IS homework.

But thanks for copying it in its entirety.

Actually I did not copy the entire note... my question was the formula for EBIT in which I cut out from bottom... I did not copy the entire text properly. Thanks for assuming I'm trying to get the entire answer you should have asked if there was a particular question about the problem. So, rude and unprofessional get a life.

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Originally Posted by Nina9669

Actually I did not copy the entire note...my question was the formula for EBIT in which I cut out from bottom...I did not copy the entire text properly. Thanks for assuming I'm trying to get the entire answer you should have asked if there was a particular question about the problem. So, rude and unprofessional get a life.

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Why would it matter? We don't do homework.

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