Mother Earth Inc. (MEI) was started three years ago by two friends who recently graduated from Blue Rock College, MEI, a multimillion-dollar distributor of environmentally friendly products, currently sells products made by other manufacturers. The management team is now considering the purchase of the manufacturer of MEI's bestseling product. The acquisition is expected to cost $12,000,000, but MEl's chief financial officer (CFO) is unclear as to whether the purchase should be financed using debt or equity funds. MEI's current capital structure consists of 1,000,000 shares of common stock and a $4 million term loan. The interest rate on the ioan is 4%, and MEI's tax rate is 40%, The two financing alternatives are: - Pian 1 - Common equity financingi Sell an additional 750,000 shares at $16 per share. - Plan 2 - Debt financing: Secure $12,000,000 through a four-year 9% term loan. Met's current earnings before interest and taxes (EBIT) is $15,000,000, and is expected to increase to $20,000,000. Given MEI's current situation and acquisition plans, complete the following table: MEt's EBrT-EPS indifference point for the debt and equity financing plans occurs when its EerT is and its EPS is When the firm's expected EBIT exceeds its EBIT-EPS indifference point and its capital structure contains increasing leveis of financing, the firm's EPS will increase. At the same time, the firm's financial risk will Assuming that MEI realizes an EBIT of $8,650,000, all other things being equal, which plan should you recommend? Plan 2 Either plan Pian 1 Neither plan The times-interest-earned (TIE) ratio often serves as an indicator of the firm's ablity to - Prior to its acquisition, the firm's TIE ratio is however, if MEI makes the acquisition and finances it using Pian 2, by securing additional debt capltal, then the firm's TIE ratio will decrease to 16.13