How does taxation impact a firm's EBIT-EPS indifference point?

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• Earnings Before Interest

  Back to the indifference point, algebraically and graphically when the earnings per share for debt and equity financing alternatives are equal, you have the EBIT-EPS indifference point.

• Business question: Financial Management

  What is EBIT-EPS analysis? 2. What is the indifference curve? Give an example. 3. How is risk factored into the EBIT-EPS analysis? 4. What are the "basic short comings" of EBIT's analysis? 5.

• EBIT-EPS Analysis, Indifference Curve, Risk Factors and Basic Short Comings

  We get a second indifference point at EBIT of 17,000 when the EPS is the same for common stock and preferred stock financing. The EBIT-EPS analysis does not explicitly account for risk since we are only looking at EPS maximization.

• EBIT-EPS calculations

  a. Calculate the EBIT-EPS indifference point. EBIT -EPS indifference point is where the EPS is the same under both the alternatives.

• A Discussion On EBIT-EPS Calculations

  EPS = (EBIT - Interest)x (1-Tax rate) / # of shares EPS Plan A : (EBIT-0) (1-0.4)/30000 Plan B : (EBIT-18000) (1-0.4)/15000 For point of indifference EPS under two plans should be eaual or (EBIT-0) (1-0.4)/30000 = (EBIT

• Accounting/Finance questions

  a. Calculate the EBIT-EPS indifference point EBIT -EPS indifference point is where the EPS is the same under both the alternatives.

• EBIT-EPS Analyisis

  We know that below indifference point, the EPS is higher under equity plan and above indifference point EPS is higher under the debt plan. Since EBIT os 750,000 is higher than indifference EBIT, the EPS will be higher under the debt plan.

• Finance question: Calculate the EBIT-EPS indifference point for Emco Products, then apply two variables to recalculate EPS.

  The detailed calculations for EBIT-EPS include a graphic illustration of the indifference point in the decision analysis.

• Common equity/debt equity financing

  Excel file contains calculation of EBIT indifference point and recommendation of plan with maximum EPS.