Explore Further into the Subject with the Best Assistance of Indifference Point
In an organization earning per share or EPS is very important. The question on what is indifference point, we’ll have to use two other important facts of financial operations as financial leverage and equity capital. When among these actions, using financial leverage upon equity capital doesn’t prove to be advantageous at all, that specific point of indifference is called Indifference point as found from Indifference Point Assignment Help.
Definition of indifference point:
As we have already mentioned in the introduction part that EBIT level where two alternative financial plans doesn’t prove to be indifferent from each other in EPS or earning per share, that is called Indifference point or indifference level.
We at Indifference Point Assignment Help can define this as the level of EBIT after which using financial leverage can be fruitful for EPS.
Here, you must pay attention to two factors especially:
- Firstly, after applying financial leverage, if the EBIT level crosses the level of indifference EBIT level concerning EPS then that is when that fixed-cost source of funds are proven beneficial.
- Secondly, after using financial leverage, if the EBIT level is less that indifference EBIT level then from EPS’s point of view, equity capital is advantageous than debt capital.
How to calculate Indifference point?
You’ll find from Indifference Point Homework Help that to calculate indifference point the following formula is required:
(X – I1) (1 – T) – PD= (X – I2) (1 – T) – PD
Here we’ll suppose, X as EBIT Indifference point, I1 as Fixed interest costs which is under an alternative, we have taken 1, I2 is in the other hand Fixed interest costs which is again under another alternative, here 2, PD is Preference dividend, if there is any, T is Tax rate, S1 is outstanding equity share under alternative 1 and S2 is under alternative 2.
How will you use an indifference point analysis tool?
You’ll actually get help from an indifference point analysis tool which is very handy to begin with. From Indifference Point Homework Help at 24x7assignmenthelp.com, you can find out that this is useful for calculating different cost structures by comparing two different methods. To use it, you’ll need to:
- Enter fixed costs 1 and variable costs 1 in the first data set.
- Enter fixed costs 2 and variable costs 2 in the second data set.
- Then pressing N will calculate indifference point.
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