(EBIT-EPS analvsis) Bill and Kate Theil are not onlv husband and wife but entrepreneurs who have established three successful businesses. The proposed plan for

and servic a In or I ne siores would ne located

nigh-tratic cities in Latin America such as Panama City, ogota, So Faulo, and

buenos Aires. I he entrepreneurs have proposed two financing plans. Plan A Is an

all common-equity structure. Five million dollars would be raised by selling 500,000 shares of common stock. Plan B would involve the use of long-term debt

financing. Three million dollars would be raised by marketing bonds with an effective interest rate of 15 percent. Under plan B, another $2 million would be raised by

sellina 200.000 shares of common stock. With both plans. S5 million is needed to launch the new firm's operations. The debt funds raised under plan B are

considered lo nave no fixed maturity date, because this portion of financial leverage is thought to be a permanent part of the companv's capital structure. The two

promising entrepreneurs

have decided to use a 34 percent tax rate in their analysis, and they have hired you on a consulting basis to do the following:

a. Find the EBIT indifference level associated with the two financina proposals

b. Prepare income statements for the two plans that prove EPS will be the same regardless of the plan chosen at the EBIT level found in part (a)

a. What is the EBIT indifference level

$ (Round to the nearest dollar.,

h. Fill in the blanks in the following income statement for plan A Round the EPS to three decimal places and all other items to the nearest dollar

FRIT

Earnings befol

re taxes (EBT'

Less: Taxes at 34%

Divide: Number of common shares

Earnings per Share (EPS)

(Tvoe a whole number.)

(Round to

(Round to

Round to the nearest dollar."

(Round to the nearest dollar."

(Toe a whole number.)

(Round to the nearest cent.)

Fill in the blanks in the following income statement for plan B. Round the EPS to three decimal places and all other items to the nearest dollar

PLANIE

-R

ecs' Interact aynencec

Earnings before taxes (EBT

Less: Taxes at 34%

svelincome

DIvide+ Wumbel

- Or common snares

Earnings per share (EPS)

(lype a whole number.)

Round to the nearest dolar

(Round to the nearest dollar.

do the nearest dolar

(Round

to the neres

dolar.

(voe a whole number I

earring per share Eps (Round to the nearest cent.)

(EBIT-EPS analysis) Bill and Kate Theil are not only husband and wife but entrepreneurs who have established three successful businesses. The proposed plan for their latest effort involves a series of international retail outlets to distribute and service a full line of ingenious home garden tools. The stores would be located in high-traffic cities in Latin America such as Panama City, Bogot, So Paulo, and Buenos Aires. The entrepreneurs have proposed two financing plans. Plan A is an all common-equity structure. Five million dollars would be raised by selling 500,000 shares of common stock. Plan B would involve the use of long-term debt financing. Three million dollars would be raised by marketing bonds with an effective interest rate of 15 percent. Under plan B, another $2 million would be raised by selling 200,000 shares of common stock. With both plans, $5 million is needed to launch the new firm's operations. The debt funds raised under plan B are considered to have no fixed maturity date, because this portion of financial leverage is thought to be a permanent part of the company's capital structure. The two. promising entrepreneurs have decided to use a 34 percent tax rate in their analysis, and they have hired you on a consulting basis to do the following: a. Find the EBIT indifference level associated with the two financing proposals b. Prepare income statements for the two plans that prove EPS will be the same regardless of the plan chosen at the EBIT level found in part (a). a. What is the EBIT indifference level associated with the two financing proposals? (Round to the nearest dollar.) b. Fill in the blanks in the following income statement for plan A. Round the EPS to three decimal places and all other items to the nearest dollar. PLAN A EBIT Less: Interest expenses (Type a whole number.) (Round to the nearest dollar.) (Round to the nearest dollar.) Earnings before taxes (EBT) Less: Taxes at 34% Net income $ (Round to the nearest dollar.) (Round to the nearest dollar.) (Type a whole number.) (Round to the nearest cent.) Divide: Number of common shares Earnings per share (EPS) Fill in the blanks in the following income statement for plan B. Round the EPS to three decimal places and all other items to the nearest dollar. PLAN B EBIT (Type a whole number.) Less: Interest expenses $ (Round to the nearest dollar.) Earnings before taxes (EBT) S (Round to the nearest dollar.) Less: Taxes at 34% $ (Round to the nearest dollar.) Net income $ (Round to the nearest dollar.) (Type a whole number.) Divide: Number of common shares Earnings per share (EPS) (Round to the nearest cent.)