A new project under consideration requires a capital outlay of Rs 300 Lakhs for which the funds can either be raised by Plan 1:issue of equity shares of Rs 300 Lakhs of Rs 100 each or Plan 2:issue of equity shares of Rs 200 Lakhs of Rs 100 each and by the issue of 15% loan of Rs 100 Lakhs. Find out the indifference level of EBIT given the tax rate at 50%. 

Calculate Earnings per share for each plan and give your comment on the basis of the result obtained.

Answer rating: 100% (QA)

SOLUTION To find the indifference level of EBIT we need to find the point where the earnings before interest and taxes EBIT are the same for both plan... View the full answer