$($EBIT$-$EPS analysis$)$ A group of retired college professors has decided to form a small manufacturing corporation that

will produce a full line of traditional office furniture. The investors have proposed two financing plans. Plan A is

an all$-$common$-$equity alternative. Under this agreement, $1\mathrm{.}4$ million common shares will be sold to net the firm $$10$ per

share. Plan B involves the use of financial leverage. A debt issue with a $20-$year maturity period will be privately placed.

The debt issue will carry an interest rate of $12$ percent, and the principal borrowed will amount to $$2\mathrm{.}1$ million. The

marginal corporate tax rate is $26$ percent.

a$.$ Find the EBIT indifference level associated with the two financing proposals.

b$.$ Prepare a pro forma income statement that proves EPS will be the same regardless of the plan chosen at the EBIT

level found in part a$.$

c$.$ Prepare an EBIT$-$EPS analysis chart for this situation.

d$.$ If a detailed financial analysis projects that long$-$term EBIT will always be close to $$2\mathrm{.}18$ million annually, which plan

will provide for the higher EPS?

e$.$ If you were to present the results of your analysis found in part a through d$,$ how would you summarize your findings

to your employer?