Four recent liberal arts graduates have interested a group of venture capitalists in backing a new enterprise. The proposed operation would consist of a series of retail outlets to distribute and service a full line of vacuum cleaners and accessories. These stores would be located in Houston, Dallas and San Antonio, Two financing plans have been proposed by the graduates. Plan A is an all-common equity structure. Ten million dollars would be raised by selling 1,000,000 shares or common stock. Plan B would involve the use of long-term debt financing. Six million dollars would be raised marketing bonds with an effective interest rate of 18 percent. Under this alternative, another $4 million dollars would be raised by selling 400,000 shares of common stock With both plans, then ST0 million is needed to launch the new firm's operations. The debt funds raised under Plan B are thought to be part of the firm's permanent capital structure. Assume a 40 percent marginal tax rate for the analysis. 17. Find the EBIT indifference level associated with the two financing alternatives. a $2,400,000 d. $1,600,000 $3,000,000 $4,200,000 $1,800,000 18. What is the EPS at this indifference level of EBIT? $0.84 d. $0.80 b. $1.32 $1.08 c. $2.00 19. B 3120 The average annual EBIT has been estimated at $1,400,000; what is the expected EPS of cach plan at this level of EBIT? d uccesso nose or de tot en Ano Plan Atas Plan Bave been proposed by the ghidates a s o nes $0.84 $0.48 rs would be raised by selling 000 000 sharest b. $0.84 $1.200 tong terde n e c $0.48 ds with $1.20tive jatorestate of cent tinderths d $0.48 dollar $0.48 Tai by 0 0.00 rebom e $1.08 $3.60 roch e RELESS D 20. Which plan should be selected if the expected average annual EBIT is $5,000,000? id Tepe Plan A d with the S600 b. Plan B 58200,000 Setelah STER