Three recent graduates of the computer science program at the university of Tennessee are forming a company that will write and distribute new application Software for the iPhone. Initially, the corporation will operate in the Southern region of Tennessee, Georgia, North Carolina, and South Carolina. A small group of private investors in the Atlanta, Georgia area is interested in financing the startup company and two financing plans have been put forth for consideration: The first plan (plan A) is an all- common-equity capital structure. $2.1 million Dollars would be raised by selling common stock at $10 per common share. Plan B would involve the use of financial leverage $1.1 million dollars would be Raised by selling bonds with an effective interest rate of 11.3 %( per annum), And the remaining $1.0 million would be raised by selling common stock at the $10 price per share. The use of financial leverage is considered to be a Permanent part of the firm