Abe forester and three of his friends from college have interested a group of venture capitalists in backing their business idea. To finance the new venture two plans have been proposed. Plan A is all-common-equity structure in which 2.3 million dollars would be raised by selling 82,000 shares of common stock
Plan B would involve selling 1.1 million in long-term bonds with an effective interest rate of 12.1 percent plus another 1.2 million would be raised by selling 41,000 of common stock.
The tax rate is 38%
Find the EBIT indifference level associated with the two financing plans and prepare a pro forma income statement that shows that EPS will be the same regardless whether Plan A or B is chosen