Between two capital plans, if expected EBIT is more than indifference level of EBIT, then _________.

both plans be rejected

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both plans are good

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one is better than other

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none of the above

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Solution

The correct option is C one is better than other
Indifference points refer to the EBIT level at which the EPS is same for two alternative financial plans.
If the expected EBIT is less than the indifference point then the financial planners will opt for equity for financing projects, because below this level, EPS will be more for less levered firm.

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