EBIT-EPS analysis – Three recent graduated of the computer science program a the University of TN are forming a company that wil write and distribute new application software for the iphone. Initially, the corporation will operate in the southern region of Tennessee, Georgi, NC, and SC. A small group of private investros in the Atlanta, Georgia area is interested in financing the startup company and two financing plans have been put forth for consideration.
The first plan (plan A) is an all-common equity capital structure. 2.1 million dollars would be raised by selling common stock at $20.00 per common share.
Plan B would involve the use of financila leverage. 1.3 million dollars would be raised by selling bonds with an effective interst rate of 10.7% per annum, and the remaining 0.8 million wouodl be raised by selling common stock at 20.00 price per share. The use of financila leverage is considered to be a permanent part of the firms capitalizaiton, so no fixed maturity date is needed for the analysis. A 30% tax rate is deemed appropriate for the analysis.
A find the EBIT indifference level assoicated with the two financing plans.
b. A detailed financial analysis of the firms prospects suggests that the long term EBIT will be above 332,000 annually. Taking into considereation, which plan will generate the higher EPS?
a. find the EBIT indifference level assoicated with the two financing plans.
The EBIT indifference level assoicated wtih the two financing plans is $____ round to the nearest dollar