Rise Ltd., a listed company having registered office in Delhi, has proposed two financial plans. Details of the same are given below: Sources of funds Plan - 1 Plan - 2 Equity shares of ₹100 each ₹22,50,000 ₹45,00,000 12

Recommendation: Plan-1 is better. Reasons: The expected EBIT of ₹25,00,000 is greater than the indifference point of ₹17,16,154. At EBIT levels above the indifference point, the plan with higher financial leverage (Plan-1) will yield a higher EPS. Let's re-calculate EPS for both plans at an EBIT of ₹25,00,000 to confirm: Particulars Plan-1 Plan-2 Expected EBIT (₹) 25,00,000 25,00,000 Less: Interest on Debentures (₹) 1,00,000 3,30,000 Equity before tax (₹) 24,00,000 21,70,000 Less: Taxes (35%) (₹) 8,40,000 7,59,500 Earnings after tax (₹) 15,60,000 14,10,500 Less: Pref. Share dividend (₹) 6,00,000 NIL Earning for equity shares (₹) 9,60,000 14,10,500 Number of shares 22,500 45,000 EPS (₹) 42.67 31.34 As shown above, at an EBIT of ₹25,00,000, Plan-1 results in an EPS of ₹42.67, which is higher than Plan-2's EPS of ₹31.34. Therefore, Plan-1 is recommended.