Calculate the level of earnings before interest and tax (EBIT) at which the EPS indifference point between the following financing alternative will occur. (a) Equity share capital of ₹12,00,000 and 12% debentures of ₹8,0

The EPS indifference point is the level of EBIT where the Earnings Per Share (EPS) for two different financing plans are equal. Formula for EPS: EPS = [ (EBIT - Interest) × (1 - Tax Rate) - Preference Dividend ] / Number of Equity Shares Plan A: Equity Share Capital = ₹12,00,000 Number of Equity Shares (NA) = ₹12,00,000 / ₹100 = 12,000 shares Debentures = ₹8,00,000 @ 12% Interest (IA) = 12% of ₹8,00,000 = ₹96,000 Preference Dividend (PDA) = ₹0 Plan B: Equity Share Capital = ₹8,00,000 Number of Equity Shares (NB) = ₹8,00,000 / ₹100 = 8,000 shares Preference Share Capital = ₹4,00,000 @ 14% Preference Dividend (PDB) = 14% of ₹4,00,000 = ₹56,000 Debentures = ₹8,00,000 @ 12% Interest (IB) = 12% of ₹8,00,000 = ₹96,000 Tax Rate (t) = 35% or 0.35 Equating EPS for Plan A and Plan B: [ (EBIT - IA) × (1 - t) - PDA ] / NA = [ (EBIT - IB) × (1 - t) - PDB ] / NB [ (EBIT - 96,000) × (1 - 0.35) - 0 ] / 12,000 = [ (EBIT - 96,000) × (1 - 0.35) - 56,000 ] / 8,000 [ (EBIT - 96,000) × 0.65 ] / 12,000 = [ (EBIT - 96,000) × 0.65 - 56,000 ] / 8,000 Multiply both sides by 24,000 (LCM of 12,000 and 8,000): 2 × [ (EBIT - 96,000) × 0.65 ] = 3 × [ (EBIT - 96,000) × 0.65 - 56,000 ] 1.3 × (EBIT - 96,000) = 1.95 × (EBIT - 96,000) - 168,000 1.3 EBIT - 124,800 = 1.95 EBIT - 187,200 - 168,000 1.3 EBIT - 124,800 = 1.95 EBIT - 355,200 355,200 - 124,800 = 1.95 EBIT - 1.3 EBIT 230,400 = 0.65 EBIT EBIT = 230,400 / 0.65 EBIT = ₹3,54,461.54 (approximately ₹3,54,462)