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Florence Flooring Limited is considering two different financing plans

Finance

Florence Flooring Limited is considering two different financing plans. 1. Under plan I the interest would be 8% on $100,000 face value bonds. 2. Under plan II the interest would be $10,125 with 1,400 shares of common stock outstanding. If the indifference point is $25,000 and the tax rate is 30%, how many shares of common stock are outstanding for plan 1?

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1] Indifference point is that level of EBIT for which, the EPS    
  is the same under two financing options. Hence, when    
  is $25,000, the EPS is the same under the two financing    
  plans.    
2] The Common EPS can be found from details given for    
  Plan 2.    
  EPS = Net income/Number of shares = (25000-10125)*(1-30%)/1400 = $                7.4375  
3] The NI under Plan 1 = (25000-100000*8%)*(1-30%) = $                11,900  
  Common stock shares outstanding for Plan 1 = NI/EPS = 11900/7.4375 = 1600 shares