Abe Forrester

Ratings: 1 Star2 Stars3 Stars4 Stars5 Stars (5.00 out of 5) - Rate Now!
Loading...

Download Category:

Abe Forrester.zip - (76.47 KB)
[
Abe Forrester/Abe Forrester.docx
Abe Forrester/Question.txt
Abe Forrester/Screenshot.png
]

Abe Forrester and three of his friends from college have invested a group of venture capitalist 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 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 82,000 shares of common stock.

Plan B would involve issuing 1.4 milliom dollars in long-term bonds with an effective interest rate at 11.9% plus 0.8 million would be raised by selling 41,000 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’s capital structure. Abe, and his friends plan to use a 35% tax rate in their analysis, and they have hired you on a consulting basis to do the following:
a) Find the EBIT indifference level associated with the two financing plans.
b) Prepare a pro forma income statement for the EBIT level solved for in part (a). that shows the EPS will be the same regardless whether Plan A, or Plan B is chosen.

a) Find the EBIT indifference level associated with the two financing plans.

The EBIT indifference level associated with the two financing plans is $_____ (round to the nearest dollar)

Get a fresh solution of this question. Ask it now to our experts.
doubt

Ask Your Question

We have verified professionals who are ready to answer your question.

time

Save Time and Money

We choose experts who can quickly answer your question and that suit your budget.

download

Get Your Answer

Your satisfaction is 100% guaranteed. You can keep on asking questions until you get the answer you need.