Work authorization functions as the formal "It's OK to begin work," on the project

Balon Plastics, Inc. is trying to decide how best to finance a proposed $10,000,000 capital investment. Under

Plan I, the project will be financed entirely with long-term 9 percent bonds. The firm currently has no debt or preferred stock. Under Plan II, common stock will be sold to net the firm $20 a share; presently, 1,000,000 shares are outstanding. The corporate tax rate for Balon is 40 percent. a. Calculate the indifference level of EBIT associated with the two financing plans. b. Prepare an EBIT-EPS analysis chart, showing the intersection of the two financing plan lines. c. Which financing plan would you expect to cause the greatest change in EPS relative to a change in EBIT? Why? d. If EBIT is expected to be $3.1 million, which plan will result in a higher EPS?

While operating leverage results only in a magnification of returns, financial leverage results only in a magnification of risk

Indicate whether the statement is true or false