$12$ variant

$1Q-35\%$ EBIT$-$EPS analysis with sinking fund$)$ Due to her concern over the effect of the "worst that

could happen" if she finances the expansion only with debt $($she believes cash collections on sales

could be as low as $$1,300,000$ in the coming year$),$ Vanessa Jefferson, the CFO of Cappuccino

Express, Inc. $($see Problem $16-1$B$),$ also has decided to consider a part debt$/$part equity alternative

to the proposed all$-$debt plan described above. The combination would include $70$ percent equity

and $30$ percent debt. The equity part of the plan would provide $$20$ per share to the company for

$70,000$ new shares. The debt portion of this plan would include $$600,000$ of new debt with fixed

financial charges of $$78,000$ for the first year $($interest$,$ $$48,000,$ plus principal$-$sinking fund,

$$30,000).$ The company is in the $35$ percent tax bracket. The company currently has $100,000$ shares

of stock outstanding. Vanessa has asked you to determine the EBIT indifference level associated

with the two financing alternatives. First plan is to finance $$2000000$ with $100\%$ debt. Interest $10\%=$$$200000$ and principal sinking fund $$100000.$