Question: A firm is considering two financing plans. The first (plan A) is an all-equity plan in which $1 million will be raised by selling stock

A firm is considering two financing plans. The first (plan A) is an all-equity plan in which $1 million will be raised by selling stock at $50 per share. Plan B involves financial leverage. The firm will raise $500,000 by issuing bonds with a 10 percent effective interest rate. The remaining $500,000 will be raised by issuing common stock at $50 per share. The tax rate is 40 percent. Find the EBIT level which will result in the same EPS for the two plans. Refer to the above problem. Using the bottom portion of an income statement, show that the EBIT calculated results in the same EPS for plans A and B.

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