Abe foster three graduates | Business & Finance homework help
The EBIT indifference level associated with the two financing plans is the point at which the expected return from both options are equal. This is calculated by subtracting the cost of debt for each plan (interest rate multiplied by invested capital) from their respective projected profits (EBITDA). For example, if Plan A has an interest rate of 10% and an EBITDA of $500,000 while Plan B has a 7% interest rate and a $450,000 EBITDA, the difference between them would be ($500,000 – 0.10*$500,000) – ($450,000- 0.07*$450,00) = $2050. Therefore in this case the EBIT indifference level would be $2 ,050 .