Question: plan A. this plan is an all equity plan. under this plan, 100,000 common shares will be sold to net the company $40 per share.

plan A. this plan is an all equity plan. under this plan, 100,000 common shares will be sold to net the company $40 per share. plan B this plan calls for a debt issue of 30-year maturity bonds in addition to new equity issued at $40 per share. the debt issue will be for $2,000,000 and carry an 8 percent interest rate.

The company tax rate is 40%and the company has 100,000 common shares issued and outstanding and the existing debt of $3,000,000 has a 6 percent coupon rate.

A. There is no impact on the breakeven EBIT based upon the financing plan

B. The use of debt will dilute the EPS of the firm

C. The EBIT/EPS indifference EBIT is $820,000

D. The EBIT/EPS indifference EBIT is $320,000

E. The EPS for the levered plan will always be higher than the un-levered plan

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