16-9B. (EBIT-EPS analysis) The professors in problem 16-8B contacted a financial consultant to provide them with some additional information. They felt that in a few years, the stock of the firm would be publicly traded over the counter, so they were interested in the consultant's opinion as to what the stock price would be under the financing plan outlined in problem 16-8B. The consultant agreed that the projected long-term EBIT level of $1,500,000 was reasonable. He also felt that if plan A were selected, the marketplace would apply a price/earnings ratio of 13 times to the company's stock; for plan B he estimated a price/earnings ratio of 11 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 upon the results of your analysis of problems 16-8B and 16-9B.