The EBIT-EPS indifference point is a calculation used in determining optimal capital structures. What that means is firms typically finance their operations with two primary means, equity and debt. 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. Put another way a firm can finance their operations at the same cost, with either debt or equity, at the indifference point.
EPS (debt financing) = EPS (equity financing)
The EBIT-EPS indifference point is a calculation used in determining optimal capital structures. What that means is firms typically finance their operations with two primary means, equity and debt. 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. Put another way a firm can finance their operations at the same cost, with either debt or equity, at the indifference point. EPS (debt financing) = EPS (equity financing)
It is the equilibrium point of utility maximization.
EBIT means "Earnings Before Interests and Taxes"
o Indifference curves are curves that have a negative slope and are bowed inward. Each point on the line has the same exact util value. In other words, a person would be the same amount of "happy" at each point on the indifference curve. There are an infinite amount of indifference curves on every graph. G2
The tangency point of Indifference curve and budget line shows the Marginal Rate of Substitution between X and Y commodities. Consumer's equilibrium is achieved at that point.
The EBIT-EPS indifference point is a calculation used in determining optimal capital structures. What that means is firms typically finance their operations with two primary means, equity and debt. 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. Put another way a firm can finance their operations at the same cost, with either debt or equity, at the indifference point. EPS (debt financing) = EPS (equity financing)
ebit diagram
Indifferent point is that EBIT level at which the Earnings Per Share (EPS) is the same for two alternative financial plans. It is called indifferent point because using either financial plan makes no difference in terms of profit and loss. An indifferent point allows more choices than any other EBIT level.
Net income + income tax + interest expense or Add together all expenses, then - interest expense - income tax
If a company need to raise additional money by issuing either debt,preffered stock & common stock.Which alternative will allow company to have highest EPS? This is called EBIT-EPS analysis.In this ,company will calculate EPS at various level of sales(and EBIT) by considering different alternatives. you can analys it by taking an example: if comapny need $50000 additional investment, having $10000 of EBIT & 2000 of shares.how it can raise funds either go for common stock by issuing 1000 more equity of $50 each or go for debt @4% interest or go for preferred stock at 7% dividend........ If company raise by common stock , number of shares will increase to 3000 and EPS will come 2.17,if it go for debt number of shares remains constant and EPS come at 2.60 and if company go for preffered stock EPS come at 1.43......this way at different levels of EBIT ,what is the EPS by considering different alternatives? So that, company comes to know which is the best alternative for company to fulfill additional capital requirement?
How to calculate the break even of EBIT
lack of interest or concern
It is the equilibrium point of utility maximization.
EBIT means "Earnings Before Interests and Taxes"
o Indifference curves are curves that have a negative slope and are bowed inward. Each point on the line has the same exact util value. In other words, a person would be the same amount of "happy" at each point on the indifference curve. There are an infinite amount of indifference curves on every graph. G2
the point at which total cost lines under the two alternatives intersect each other. Cost indifference point is calculated as under: - Difference in fixed costs/ Difference in PV ratio.
Breakeven point = Fixed cost / contribution margin ratio contribution margin ratio = sales - variable cost / sales.