(EBIT-EPS analysis) Mark and three of his friends from college have interested a

Question

(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 $2.1 million dollars would be raised be selling 86,000 shares of common stock.PLAN B would involve issuing $1.2 million dollars in long-term bonds with an effective interest rate of 12.1% plus $0.9 million would be raised by selling 43,000 shares of common stock.The debt funds raised under PLAN B no fixed maturity date,in that Mark and his partners plan to use a 38% tax rate in their analysis,and they have hired you on a consulting basis to do the following: FIND THE EBIT INDIFFERENCE LEVEL ASSOCIATED WITH THE TWO FINANCING PLANS_$___(round to the nearest dollar)

Explanation / Answer

EBIT INDIFFERENCE LEVEL .62EBIT/86000= {(EBIT-145200).62}/43000 EBIT= $290400

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