XYZ Company requires $1,000,000 for its proposed plan. The following financial alternatives are available:
• Plan A: 50% Equity Capital (Face Value $100) and 50% Debenture (interest rate 4%)
• Plan B: 25% Equity Capital (Face Value $100), 25% Debentures (interest rate 4%), and 50% Preference Shares (rate of dividend 6%)
The rate of tax applicable to the company is 35%. The company expects an EBIT of $4,000,000.

Calculate the Indifference point of EBIT between plans A and B

Answer rating: 100% (QA)

To calculate the indifference point of EBIT between plans A and B we need to find the EBIT level at ... View the full answer