The indifference point is the intersection of two lines relating EPS as a function of EBIT for two different leverage scenarios. So far, we've found the intersection visually and confirmed that the EPS was equal for different leverage scenarios.

1. Calculate the indifference point algebraically by finding the intersection of the two EPS vs EBIT lines in Example 14-3. Hint: you'll first have to represent each line in the form of y=mx+b. Then solve for the intersection, i.e., x such that both equations are equal.
2. You may write out your algebra long hand and upload a scan, use Excel, or any graphics program.
3. Verify your formula in the EBIT-EPS spreadsheet you created for the EBIT-EPS Analysis thread. Does your formula give you the precisely correct indifference point?

Figure 14-3 EBIT-EPS Analysis for Arizona Balloon Corporation from Table 14-1, Columns 1 and 2 EPS $ $4.00 50% Debt 53.00 Advantage to Debt $2.00 No Loverage $1.00 $100 $300 EBIT 5.400 Advantage to Equity 5200 in thousands) Cengage Learning Figure 14-3 EBIT-EPS Analysis for Arizona Balloon Corporation from Table 14-1, Columns 1 and 2 EPS $ $4.00 50% Debt 53.00 Advantage to Debt $2.00 No Loverage $1.00 $100 $300 EBIT 5.400 Advantage to Equity 5200 in thousands) Cengage Learning