Please EXPLAIN how you get the answer to the following equation. I am stuck on simple math / algebra where I set each equation to equal one another.
1) Plan A is an all-common-equity structure in which 2.2 million dollars would be raised by selling 84,000 shares of common stock
2) Plan B would involve issuing 1.4 million long-term bonds with an effective interest rate of 11.6 percent plus another 0.8 millioin would be raised by selling 42,000 shares of common stock. The debt raised under Plan B has no fixed maturity date, in that this amount of financial leverage is considered a permamnent part of the firm's capital structure.
Both plans use a 38% tax rate in their analysis.
1. Find the EBIT indifference level associated with the two financing plans
2. Prepare a pro forma income statement for the ebit level solved for in part a that shows the eps will be the same regardless whether plan A or B is chosen.