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linda_us, Master's Degree
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Abe Forrester and three of his friends from college have interested

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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 2.4 million dollars would be raised by selling common stock at $10 per share.

Plan B would involve the use of financial leverage. $1.2 million dollars woulb be raised by selling bonds with an a effective interest rate of 10.7% (per annum), and the remaining $1.2 milion would be raised by selling common stock at the $10 price per share. No fixed maturity date is needed. A 35% tax rate is deemed appropriate for the analysis.


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 Plan B is chosen
Submitted: 2 years ago.
Category: Single Problem
Expert:  linda_us replied 2 years ago.
linda_us, Master's Degree
Category: Single Problem
Satisfied Customers: 6997
Experience: Business Analyst and Solution Consultant with over 9 years of experience.
linda_us and other Single Problem Specialists are ready to help you
Customer: replied 2 years ago.
I am having trouble arriving at the answer for Y which is why I keep having difficulty with the problems. Are you able to provide an excel version of the calculation to arrive at Y?
Expert:  linda_us replied 2 years ago.
I am providing the detailed response.

Wait for few minutes.
Expert:  linda_us replied 2 years ago.

Please CLICK HERE for Solution

If you still need excel version, please let me know but that won't be as detailed as this.

Regards

Linda
linda_us, Master's Degree
Category: Single Problem
Satisfied Customers: 6997
Experience: Business Analyst and Solution Consultant with over 9 years of experience.
linda_us and other Single Problem Specialists are ready to help you

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