16-13A. (EBIT-EPS analysis) The professors discussed in problem 16-12A contacted a financial consultant to provide them with some additional information. They felt that in a few years, the stock of the finn would be publicly traded over the counter, so they were interested in the consultant's opinion as to what the stock price would be Wlder the financing plan outlined in problem 16-12A.
The consultant agreed that the projected long-term EBlT level of $1 ,800,000 was reasonable. He also felt that if plan A were selected, the marketplace would apply a price/earnings ratio of 12 times to the company's stock; for plan B he estimated a price/earnings ratio of 10 times.

a. According to this information, which financing alternative would offer a higher stock price?

b. What price/earnings ratio applied to the EPS related to plan B would provide the same stock price as that projected for plan A?

c. Comment on the results ofyoUT analysis of problems 16-12A and 16-13A.