Financial ManagementMCQQuestion 5500 of 217
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3. What would be the financial Break Even Point (BEP) in Plan-I and Plan-II?

Options

A` 13,75,000 and ` 15,10,000
B` 13,70,000 and ` 15,00,000
C` 13,65,000 and ` 15,15,000
D` 13,60,000 and ` 15,08,571
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Correct Answer

✅ Option D — ` 13,60,000 and ` 15,08,571

All Options:

  • A` 13,75,000 and ` 15,10,000
  • B` 13,70,000 and ` 15,00,000
  • C` 13,65,000 and ` 15,15,000
  • D` 13,60,000 and ` 15,08,571 ✓

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Detailed Solution & Explanation

The Financial Break-Even Point (Financial BEP) is the level of EBIT at which the Earnings Per Share (EPS) is equal to zero. The formula is:
Financial BEP=Interest+Preference Dividend1−t\text{Financial BEP} = \text{Interest} + \frac{\text{Preference Dividend}}{1 - t}
where t\displaystyle t is the corporate tax rate (30%=0.30\displaystyle 30\% = 0.30).

**1. For Plan-I:**
* Total Interest Expense = Rs. 13,60,000\displaystyle \text{Rs. } 13,60,000
* Preference Dividend = 0\displaystyle 0
* Financial BEPI=Rs. 13,60,000+0=Rs. 13,60,000\displaystyle \text{Financial BEP}_I = \text{Rs. } 13,60,000 + 0 = \text{Rs. } 13,60,000

**2. For Plan-II:**
* Total Interest Expense = Rs. 11,00,000\displaystyle \text{Rs. } 11,00,000
* Preference Dividend = Rs. 2,86,000\displaystyle \text{Rs. } 2,86,000
* Financial BEPII=Rs. 11,00,000+Rs. 2,86,0001−0.30\displaystyle \text{Financial BEP}_{II} = \text{Rs. } 11,00,000 + \frac{\text{Rs. } 2,86,000}{1 - 0.30}
* Financial BEPII=Rs. 11,00,000+Rs. 2,86,0000.70\displaystyle \text{Financial BEP}_{II} = \text{Rs. } 11,00,000 + \frac{\text{Rs. } 2,86,000}{0.70}
* Financial BEPII=Rs. 11,00,000+Rs. 4,08,571.43=Rs. 15,08,571.43≈Rs. 15,08,571\displaystyle \text{Financial BEP}_{II} = \text{Rs. } 11,00,000 + \text{Rs. } 4,08,571.43 = \text{Rs. } 15,08,571.43 \approx \text{Rs. } 15,08,571

Hence, the Financial BEP is `Rs. 13,60,000` for Plan-I and `Rs. 15,08,571` for Plan-II.

Hence, **Option D** is the correct answer.

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