Algebraic Approach Homework Help

Algebraic Approach

Mathematically, the indifference point can be obtained by using the following
symbols:

X = earnings before interest and taxes (EBIT) at the indifference point.
N1 = number of equity shares outstanding if only equity shares are issued.
N2 = number of equity shares outstanding if both debentures and equity shares are issued.
N3 = number of equity shares outstanding if both preference and equity shares are issued.
N4 = number of equity shares outstanding if both preference shares and debentures are issued.
t = the amount of interest on debentures.
Dp = the amount of dividend on preference shares.
t = corporate income tax rate.
Dt = tax on preference dividend.

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