Sundari Inc manufactures herbal skin care products. They are currently an all equity firm with a market value of $2,000,000 and share price of $20 per share. The company is looking to expand into the cosmetics market. Investors have proposed the following funding design for this new venture. Plan A is an all equity plan. Under this plan, 200,000 new common shares will be sold at $20 per share. Plan B calls for a debt issue of 20-year maturity bonds in addition to new equity which will be sold at the current market price. The debt issue will be for $3,000,000 and carry an annual 8 percent interest rate. The company's marginal tax rate is 42%.

A. If financing plan A is used, the company will need to raise $4,000,00 while if plan B is used, the company will need to raise $3,000,000 in financing. B. The EBIT indifference point occurs when EBIT is $300,000 and the firm should use plan B to maximize the expected EPS>

Question 10 options:

	Neither A nor B is true
	A only is true.
	Both A and B are true.
	B only is true