A new project under consideration requires a capital outlay of ₹300 lakh for which the funds can either be raised by issue of equity shares of ₹100 each for the entire sum or by issue of equity shares to the tune of ₹200

Financial Plan I (Equity Financing): Total Capital Outlay = ₹300 lakh Financing: Entirely by Equity Shares of ₹100 each Number of Equity Shares = ₹300 lakh / ₹100 = 3,00,000 shares Debt = ₹0 Interest = ₹0 Financial Plan II (Mixed Financing): Total Capital Outlay = ₹300 lakh Financing: Equity Shares of ₹200 lakh and 15% Loan of ₹100 lakh Number of Equity Shares = ₹200 lakh / ₹100 = 2,00,000 shares Debt = ₹100 lakh Interest on Debt = 15% of ₹100 lakh = ₹15 lakh Tax Rate: 50% The indifference level of EBIT is the level at which EPS (Earnings Per Share) under both financing plans is equal. EPS = [EBIT - Interest] * (1 - Tax Rate) / Number of Equity Shares Let EBIT be 'X'. For Financial Plan I: EPS I = [X - 0] * (1 - 0.50) / 3,00,000 EPS I = X * 0.50 / 3,00,000 For Financial Plan II: EPS II = [X - 15,00,000] * (1 - 0.50) / 2,00,000 EPS II = [X - 15,00,000] * 0.50 / 2,00,000 At indifference level, EPS I = EPS II : X * 0.50 / 3,00,000 = [X - 15,00,000] * 0.50 / 2,00,000 Multiply both sides by 1 / 0.50: X / 3,00,000 = [X - 15,00,000] / 2,00,000 Cross-multiply: 2,00,000 * X = 3,00,000 * (X - 15,00,000) 2X = 3X - 45,00,000 X = 45,00,000 Thus, the indifference level of EBIT is ₹45,00,000 (₹45 lakh). At this level, the EPS under both plans would be the same.