arts a and b? 15-12. (Using EBIT-EPS analysis) (Related to Checkpoint 15.2 on page 538) Abe Forrester and three of his friends from college have interested a group of venture capitalists 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 million would be raised by selling 80,000 shares of common stock. Plan B involves issuing $1 million in long-term bonds with an effective interest rate of 12 percent and raising another $1 million by selling 40,000 shares of com- mon 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 partners plan to use a 40 percent 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 found in part a that shows EPS will be the same, regardless of whether Plan A or Plan B is chosen.

-12. (Using EBIT-EPS analysis) (Related to Checkpoint 15.2 on page 538) Abe Forrester and three of his friends from college have interested a group of venture capitalists 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 million would be raised by selling 80,000 shares of common stock. - Plan B involves issuing \$1 million in long-term bonds with an effective interest rate of 12 percent and raising another $1 million by selling 40,000 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 partners plan to use a 40 percent 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 found in part a that shows EPS will be the same, regardless of whether Plan A or Plan B is chosen