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EBIT-EPS analysis is used to examine the effect of altemative plans of capital flnancing on the firm's earnings per share (EPS), assuming a range of

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EBIT-EPS analysis is used to examine the effect of altemative plans of capital flnancing on the firm's earnings per share (EPS), assuming a range of values for the firm's level of earnings before interest and taxes (EBIT). The results can be generated and presented using either a mathematical or a graphical solution. What information is needed to perform an EBIT-EPS analysis? Check all that apply, A graph with the firm's E8IT as the X-axis scale and the firm's EPS as the Y-axis scale Projections regarding the firm's future EBIT levels The EBIT-EPS indifference point The current and expected future prices per share of the firms preferred stock An important piece of information produced by the EBIT-EPS analysis is the level of EBIT at which two possibie financing plans generate the same EPS, such that a decision maker would be indifferent between the two plans. Consider the case of Campbell Construction Company. Campbell Construction Company is an unlevered frrm currentiy earning an EBit of $15 milition, with 2 million shares of common stock outstanding and a tax rate of 40%. In anticipation of making a major acquisition, Campbell is evaluating whether to finance its future fowth using elther the sale of Consider the case of Campbell Construction Company. Campbell Construction Company is an unlevered firm currently eaming an EBIT of $15 million, with 2 million shares of common stock outstanding and a tax rate of 40%. In anticipation of making a major acquisition, Campbell is evaluating whether to finance its future growth using either the sale of $40 million of new 10% bonds (Plan 1) or the issuance of 4 million new shares of common stock at $10 per share (Plan 2 ). The firm's EBIT-EPS indifference point corresponds to an EBIT of $ and an EPS of $ Earlier today, Campbeli's CFO and her staff developed two postacquisition forecasts of the firm's expected EBIT. If the economy and the acquisition are expected to perform poorly, Campbeli's EBIT is expected to be $5 million, but if the economy and the acquisition are expected to perform well, the EBIT is expected to be $18 million. One of the staff members used this projected Earr data and the corresponding eps values to generate the following EBIT-EPS groph. Examine the graph and use it to answer the questions that follow. Which financing plan should be recommended if Campbell expects an EBIT of $4 million? should be recommended, beca for the specified level of EBIT

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