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What is the EPS-EBIT indifference point

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Question - Maryland Limited's capital structure consists of Rs 60 crore worth of equity capital(Rs 10). The firm's current EBIT is 86 crore and interest is 16 crore.

The firm requires Rs. 200 crore of external financing for which it is considering two alternatives:

Alternative A: Issue of 1.6 crore equity shares of Rs 10 par at Rs. 125 each.

Alternative B: Issue of Rs.200 crore of debentures carrying 8 percent interest rate.

Tax rate is 30%.

Required -

What is the EPS-EBIT indifference point?

What is the EPS at this point?

Reference no: EM132768750

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