Complete the segment of income statement for given plans

Reference no: EM131793346

Question: (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:

- Plan A is an? all-common-equity structure in which $2.3 million dollars would be raised by selling 88,000 shares of common stock.

- Plan B would involve issuing $1.3 million in long-term bonds with an effective interest rate of 11.8 percent plus another $1.0 million would be raised by selling 44,000 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 40 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 $ (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.)

Stock Plan
EBIT	$
Less: Interest Expense
Earnings Before Taxes	$
Less: Taxes at 40%
Net Income	$
Number of Common Shares
EPS	$

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

Bond/Stock Plan
EBIT	$
Less: Interest Expense
Earnings Before Taxes	$
Less: Taxes at 40%
Net Income	$
Number of Common Shares
EPS	$

Enter any number in the edit fields and then continue to the next question.

Reference no: EM131793346

Questions Cloud

Country nationals to be recruited to manage subsidiaries : Which of the following is the staffing policy that requires host-country nationals to be recruited to manage subsidiaries,

Discuss what has been the companys financial strategy : What has been the company's financial strategy. Why does Mr. Butler have to borrow so much money to support this seemingly profitable business

Which form of employment tests do you believe are worse use : Which form of employment tests do you believe are the best to use? Why? Which form of employment tests do you believe are the worse to use? Why?

How is cancer influenced by genetics : How is cancer influenced by genetics/genetic background? Why do tumor cells have a greater degree of genetic instability than normal cells

Complete the segment of income statement for given plans : Abe Forrester and three of his friends from college have interested a group of venture capitalists in backing their business idea.

How hostmanship helps to get more customer in future : What are the ways to improve service quality in AntonsKokken? How Hostmanship helps to get more customer in future?

What is the role of integrins at cell-matrix junctions : What are the different types of cell-matrix junctions, actin-linked cell-matrix junctions and hemidesmosomes? What is role of integrins at cell-matrix junctions

Life of the flashlight follows normal distribution : If the managers believe the life of the flashlight follows a normal distribution with a mean of two and one-half years and a standard deviation of six months:

What are the properties of fibronectin : What is the role of fibronectin in organizing extracellular matrix? What are the properties of fibronectin? What is it able to associate with

User Account

All Pages