$($EBIT$-$EPS analysis$)$ A group of retired college professors has decided to form a small manufacturing corporation that will produce a full line of traditional office furniture. The investors have proposed two financing plans. Plan $A$ is an all$-$common$-$equity alternative. Under this agreement, $1\mathrm{.}6$ million common shares will be sold to net the firm $$10$ per share. Plan $B$ involves the use of financial leverage. A debt issue with a $20-$year maturity period will be privately placed. The debt issue will carry an interest rate of $11$ percent, and the principal borrowed will amount to $$3\mathrm{.}2$ million. The marginal corporate tax rate is $24$ percent.

a$.$ Find the EBIT indifference.level associated with the two financing proposals.

b$.$ Prepare a pro forma income statement that proves EPS will be the same regardless of the plan chosen at the EBIT level found in part a$.$

c$.$ Prepare an EBIT$-$EPS analysis chart for this situation.

d$.$ If a detailed financial analysis projects that long$-$term EBIT will always be close to $$2\mathrm{.}26$ million annually, which plan will provide for the higher EPS?

e$.$ If you were to present the results of your analysis found in part a through d$,$ how would you summarize your findings to your employer?

a$.$ What is the EBIT indifference level associated with the two financing proposals?

$($Round to the nearest dollar.$)$

b$.$ Fill in the blanks in the following income statement for plan A$.$ Round the EPS to two decimal places and all other items to the nearest dollar.

$\backslash$table$[[$PLAN A$,,],[$EBIT$,$$$,($Type a whole number.$)],[$Less: Interest expenses,$$,($Round to the nearest dollar.$)],[$Earnings before taxes $($EBT$),$$$,($Round to the nearest dollar.$)],[$Less: Taxes at $24\%,$$$,($Round to the nearest dollar.$)],[$Net income,,$($Round to the nearest dollar.$)],[$Divide: Number of common shares,,$($Type a whole number.$)],[$Earnings per share $($EPS$),$$$|,($Round to the nearest cent..$)]]$

Fill in the blanks in the following income statement for plan B$.$ Round the EPS to two decimal places and all other items to the nearest dollar.

Fill in the blanks in the following income statement for plan B$.$ Round the EPS to two decimal places and all other items to the nearest dollar.

PLAN B

EBIT

$ $($Type a whole number.$)$

Less: Interest expenses

$ $($Round to the nearest dollar.$)$

Earnings before taxes $($EBT$)$

$!$

$($Round to the nearest dollar.$)$

Less: Taxes at $24\%$

$ $q,($Round to the yzarest dollar.$)$

Net income

$q,($Round to the nearest dollar.$)$

Divide: Number of common shares

$($Type a whole number.$)$

Earnings per share $($EPS$)$

$

$($Round to the nearest cent.$)$

c$.$ The following graph is an EBIT$-$EPS analysis chart for this situation. Using the Point Drawing Tool on the palette, show the EBIT$-$EPS indifference point computed in part a in the chart.

$($EBIT$-$EPS analysis$)$ A group of retired college professors has decided to form a small manufacturing corporation that will produce a full line of traditional office furniture. The investors have proposed two financing plans. Plan A is an all$-$common$-$equity alternative. Under this agreement, $1\mathrm{.}6$ million common shares will be sold to net the firm $$10$ per share. Plan B involves the use of financial leverage. A debt issue with a $20-$year maturity period will be privately placed. The debt issue will carry an interest rate of $11$ percent, and the principal borrowed will amount to $$3\mathrm{.}2$ million. The marginal corporate tax rate is $24$ percent.

a$.$ Find the EBIT indifference. level associated with the two financing proposals.

b$.$ Prepare a pro forma income statement that proves EPS will be the same regardless of the plan chosen at the EBIT level found in part a$.$

c$.$ Prepare an EBIT$-$EPS analysis chart for this situation.

d$.$ If a detailed financial analysis projects that long$-$term EBIT will always be close to $$2\mathrm{.}26$ million annually, which plan will provide for the higher EPS?

e$.$ If you were to present the results of your analysis found in part a through d$,$ how would you summarize your findings to your employer?

a$.$ What is the EBIT indifference level associated with the two financing proposals?

$ $($Round to the nearest dollar.$)$

b$.$ Fill in the blanks in the following income statement for plan A$.$ Round the EPS to two decimal places and all other items to the nearest dollar.

$\backslash$table$[[$PLAN A$,,],[$EBIT$,$$$,($Type a whole number.$)],[$Less: Inter