week4/5 (EBIT-EPS analysis) Mark and three of his friends from college have inte

Question

week4/5 (EBIT-EPS analysis) Mark and three of his friends from college have interested a group of venture capilists 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 Antonia.To finance the new venture two plans have been proposed. PLAN A is an all-common-equity structure in which $2.4 million dollars would be raised be selling 84,000 shares of common stock.PLAN B would involve issuing $1.2 million dollars in long-term bonds with an effective interest rate of 11.8% plus $1.2 million would be raised by selling 42,000 shares of common stock.The debt funds raised under PLAN B no fixed maturity date,in that Mark and his partners plan to use a 34% tax rate in their analysis,and they have hired you on a consulting basis to do the following: FIND THE EBIT INDIFFERENCE LEVEL ASSOCIATED WITH THE TWO FINANCING PLANS_$___(round to the nearest dollar)

Explanation / Answer

EBIT INDIFFERENCE LEVEL .34EBIT/84000= {(EBIT-141600)x.34}/42000 Therefore EBIT= $283200

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