The following data pertains to Yagya Ltd. : Existing Capital Structure : 20 lakh equity shares of ₹ 10 each Tax Rate 50% Yagya Ltd. plans to raise additional capital of ₹ 200 lakh for financing an expansion project. It i

Let X be the level of EBIT at which EPS under both the plans is equal Plan (i): Issue of 20,00,000 equity shares of ₹ 10 each Interest in plan (i) = 0 No. of shares in plan (i) = Existing shares + New shares = 20,00,000 + 20,00,000 = 40,00,000 shares Plan (ii): Issue of ₹ 200 lakh debentures carrying 14% interest Interest in plan (ii) = 14% of ₹ 200 lakh = ₹ 28,00,000 No. of shares in plan (ii) = Existing shares = 20,00,000 shares Indifference point at which EPS under plan (i) and plan (ii) are equal (X - Interest) (1 - tax rate) / no. of shares = (X - Interest) (1 - tax rate) / no. of shares (X - 0) (1 - 0.50) / 40,00,000 = (X - 28,00,000) (1 - 0.50) / 20,00,000 X / 40,00,000 = (X - 28,00,000) / 20,00,000 X = 2 (X - 28,00,000) X = 2X - 56,00,000 X = 56,00,000 The indifference level or the level of EBIT at which EPS under both the plan is equal is ₹ 56,00,000.