(Related to Checkpoint? 15.2)???(EBIT-EPS analysis)??Abe Forrester and three of his friends from college have interested a group of venture capitalists in backing their business idea. 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? Dallas, Houston, and San Antonio. To finance the new venture two plans have been? proposed:

bullet??

Plan A is an? all-common-equity structure in which

?$2.52.5

million dollars would be raised by selling

84 comma 00084,000

shares of common stock.

bullet??

Plan B would involve issuing

?$1.31.3

million in? long-term bonds with an effective interest rate of

12.312.3

percent plus another

$ 1.2$1.2

million would be raised by selling

42 comma 00042,000

shares of common stock. The debt funds raised under Plan B have no fixed maturity? date, in that this amount of financial leverage is considered a permanent part of the? firm's capital structure.Abe and his partners plan to use a

3434

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 plans.

b.??Prepare a pro forma income statement for the EBIT level solved for in part a that shows that EPS will be the same regardless whether Plan A or B is chosen.

a.??The EBIT indifference level associated with the two financing plans is

?$nothing.

?(Round to the nearest? dollar.)

b.??Complete the segment of the income statement for Plan A? below:???(Round income statement amounts to the nearest dollar except the EPS to the nearest? cent.)