$($EBIT$-$EPS analysis$)$ Bill and Kate Theil are not only husband

and wife but entrepreneurs who have established three successful

businesses. The proposed plan for their latest effort involves a

series of international retail outlets to distribute and service a

full line of ingenious home garden tools. The stores would be

located in$$high$-$traffic cities in Latin America such as

Panama$$City$,$ Bogot$,$S$$o Paulo, and Buenos Aires. The

entrepreneurs have proposed two financing plans. Plan A is an

all$$common$-$equity structure. Five million dollars would be

raised by selling $200,000$ shares of common stock. Plan B would

involve the use of$$long$-$term debt financing. Three million

dollars would be raised by marketing bonds with an effective

interest rate of $15$ percent. Under plan$$B$,$ another$$$$2$

million would be raised by selling $80,000$shares of common stock.

With both$$plans$,$ $$5$ million is needed to launch the

new$$firm$\text{'}$s operations. The debt funds raised under plan B are

considered to have no fixed maturity$$date$,$ because this

portion of financial leverage is thought to be a permanent part of

the$$company$\text{'}$s capital structure. The two promising

entrepreneurs have decided to use a $22$ 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 proposals.b$.$ Prepare income statements for the two plans that prove EPS

will be the same regardless of the plan chosen at the EBIT level

found in part a$.$