IndigoLearn

Capital structure

Can there be indifference point between debt and preference share capital


shamanth rm

shamanth rm

CA Inter

120

05-Apr-20 21:37

16

Answers (4)

Generally, Indifference point(idp) is one at which EPS of 1 option = EPS of another option.In Rarest of rare condions idp exists between finance cost options i.e pref.option and debt option. In such case EBIT= Interest+(pref.div/1-tax). And Interest = pref.div/1-tax.


K K K

K K K

CA Inter

13K+

06-Apr-20 16:20

Could you please explain formula.. I did not understand plan formula

Attachments

IMG_20200406_173535.jpg


shamanth rm

shamanth rm

CA Inter

120

06-Apr-20 17:36

EPS plan 1=EPS plan 2 [(EBIT1-Interest1) (1-tax) -pref.div]/no.of eq.shares= same formula for this side also for plan 2


K K K

K K K

CA Inter

13K+

06-Apr-20 18:37

Thank you


shamanth rm

shamanth rm

CA Inter

120

06-Apr-20 19:04