A new project requires outlay of ₹ 800 lakhs. The amount maybe raised through issue of equity shares of ₹ 400 each or by issuing equity shares of value ₹ 600 lakhs and loan of ₹ 200 lakhs at 14% interest. Assuming income

Step 1: Formula for calculation of indifference point (EBIT - Interest) * (1- tax rate) / (Number of equity shares in Plan 1) = (EBIT - Interest) * (1- tax rate) / (Number of equity shares in Plan 2) Step 2: Calculation of interest and number of equity shares in each plan Plan 1 (Equity) Plan 2 (Equity + Loan) Value of equity shares (in ₹ Lakhs) 800 600 + 200 Share price (₹) 400 400 Number of shares (in lakhs) 2 1.5 Loan amount (Lakhs) 200 Interest % 14% Interest amount (Lakhs) 28 Step 3: Calculation of indifference point Plan 1 Plan 2 (EBIT - 0) * (1 - 25%) / 2 = (EBIT - 28) * (1 - 25%) / 1.5 0.75 EBIT / 2 = 0.75EBIT - 21 / 1.5 0.5625 EBIT = 0.75 EBIT - 21 EBIT (₹ Lakhs) = 112/-