?(Related to Checkpoint? 15.2)???(EBIT-EPS analysis)??Abe Forrester and three of his friends from college have interested a group...

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?(Related to Checkpoint? 15.2)???(EBIT-EPS analysis)??AbeForrester and three of his friends from college have interested agroup of venture capitalists in backing their business idea. Theproposed operation would consist of a series of retail outlets todistribute and service a full line of vacuum cleaners andaccessories. These stores would be located in Dallas, Houston, andSan Antonio. To finance the new venture two plans have been?proposed:
Plan A is an? all-common-equity structure in which ?$2.2 milliondollars would be raised by selling 84,000 shares of commonstock.
Plan B would involve issuing ?$1.2 million in? long-term bondswith an effective interest rate of 11.8 percent plus another $ 1.0million would be raised by selling 42,000 shares of common stock.The debt funds raised under Plan B have no fixed maturity? date, inthat this amount of financial leverage is considered a permanentpart of the? firm's capital structure.
Abe and his partners plan to use a 40 percent 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 twofinancing plans.
b.??Prepare a pro forma income statement for the EBIT levelsolved for in part a that shows that EPS will be the sameregardless whether Plan A or B is chosen.

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?(Related to Checkpoint? 15.2)???(EBIT-EPS analysis)??AbeForrester and three of his friends from college have interested agroup of venture capitalists in backing their business idea. Theproposed operation would consist of a series of retail outlets todistribute and service a full line of vacuum cleaners andaccessories. These stores would be located in Dallas, Houston, andSan Antonio. To finance the new venture two plans have been?proposed:Plan A is an? all-common-equity structure in which ?$2.2 milliondollars would be raised by selling 84,000 shares of commonstock.Plan B would involve issuing ?$1.2 million in? long-term bondswith an effective interest rate of 11.8 percent plus another $ 1.0million would be raised by selling 42,000 shares of common stock.The debt funds raised under Plan B have no fixed maturity? date, inthat this amount of financial leverage is considered a permanentpart of the? firm's capital structure.Abe and his partners plan to use a 40 percent 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 twofinancing plans.b.??Prepare a pro forma income statement for the EBIT levelsolved for in part a that shows that EPS will be the sameregardless whether Plan A or B is chosen.