GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Intercept at X-axis
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Intercept at Y-axis
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Slope of EBIT-EPS line
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None of the above
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Detailed explanation-1: -The two lines intersect at point E where the level of EBIT and EPS both are same under both the financial plans. Point E is the indifference point. The value corresponding to X axis is EBIT and the value corresponding to Y axis is EPS.
Detailed explanation-2: -Financial breakeven point is a point where earnings before income tax (EBIT) is equal to financial cost of a firm (or) earnings per share (EPS) is equal to zero. It is useful in calculating zero net income. It also helps in at which earnings per share is zero. Breakeven point increases when customer sales increases.
Detailed explanation-3: -Indifference Level / Point. The indifference level of EBIT is one at which the EPS remains same irrespective of the debt equity mix. Out of several available financial plans, the firm may have two or more financial plans which result in the same level of EPS for a given EBIT.
Detailed explanation-4: -Answer and Explanation: The difference between the accounting break-even point and the financial break-even point is as follows: The accounting break-even point is calculated as the total fixed cost divided by the selling price minus variable cost. The financial break-even point is where the earning per share is zero.
Detailed explanation-5: -To calculate the level of EBIT where EPS remains stable, simply input the debt interest, current EPS and updated shares outstanding values and solve for EBIT: ($10.50 x 20, 000) + 0 รท (1-0.3) + $500 = $300, 500. Under this financing plan, the company must more than double its earnings to maintain a stable EPS.