Abe Forrester and three of his friends from college have interested a group of v

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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, Huston, and San Antonio. To finance the new venture two plans have been proposed: Plan A is an all-common-equity structure in which $2.2 million dollars would be raised by selling 90,000 shares of common stock. Plan B would involve issuing $1.1 million dollars in long-term bonds with an effective interest rate of 12.2% plus $1.1 million would be raised by selling 44,000 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

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