What is indifference level of EBIT?
The indifference level of EBIT is one at which the EPS remains same irrespective of the debt equity mix. Out of several available financial plans, the firm may have two or more financial plans which result in the same level of EPS for a given EBIT.
How do you calculate indifference level of EBIT?
Calculation of cost indifference point
E = EBIT. I = Interest on debt capital.
What is an EBIT-EPS analysis with explain indifference point in EBIT-EPS analysis?
EBIT-EPS analysis involves determining the crossover or indifference EBIT at which the EPS is the same between two financing alternatives. In other words, the use of a financial break-even point (BEP), and the return from alternative financial plans, is called indifference analysis.
What is financial break even level of EBIT?
Financial breakeven point is a point where earnings before income tax (EBIT) is equal to financial cost of a firm (or) earnings per share (EPS) is equal to zero. It is useful in calculating zero net income. It also helps in at which earnings per share is zero.
What is indifference point in capital structure?
The EPS, earnings per share, ‘equivalency point’ or ‘point of indifference’ refers to that EBIT, earnings before interest and tax, level at which EPS remains the same irrespective of different alternatives of debt-equity mix At this level of EBIT, the rate of return on capital employed is equal to the cost of debt and …
What is indifference level?
The indifference point is the level of volume at which total costs, and hence profits, are the same under both cost structures. If the company operated at that level of volume, the alternative used would not matter because income would be the same either way.
How do you find the indifference point?
To calculate the Cost Indifference Point, divide the differential fixed costs by the differential variable costs per unit.
What is EBIT analysis?
EBIT (earnings before interest and taxes) is a company’s net income before income tax expense and interest expenses are deducted. EBIT is used to analyze the performance of a company’s core operations without the costs of the capital structure and tax expenses impacting profit.