Calculate financial break even point of a plan having 10% debt of rs 100000 equity share capital of rs 1000000 and 10% preference share of rs 50000 assume tax rate@ 50%

To calculate the financial break-even point, we need to determine the level of EBIT (Earnings Before Interest and Taxes) at which the company covers all its fixed financial obligations, including interest on debt and dividends on preference shares. At the financial break-even point, the Net Income (NI) is zero.

### Given:
- **Debt** = Rs. 100,000 (at 10% interest rate)
- **Equity Share Capital** = Rs. 1,000,000
- **Preference Share Capital** = Rs. 50,000 (at 10% dividend rate)
- **Tax Rate** = 50%

### Steps:

1. **Calculate Interest on Debt:**
   \[
   \text{Interest} = 10\% \times 100,000 = Rs. 10,000
   \]

2. **Calculate Dividends on Preference Shares:**
   \[
   \text{Preference Dividend} = 10\% \times 50,000 = Rs. 5,000
   \]

3. **Calculate Total Financial Obligations:**
   The total financial obligations are the sum of interest and preference dividends. Since preference dividends are paid after tax, we need to adjust them for taxes:
   \[
   \text{Post-tax Preference Dividend} = \frac{\text{Preference Dividend}}{1 - \text{Tax Rate}}
   \]
   \[
   \text{Post-tax Preference Dividend} = \frac{5,000}{1 - 0.5} = \frac{5,000}{0.5} = Rs. 10,000
   \]
   \[
   \text{Total Financial Obligations} = \text{Interest} + \text{Post-tax Preference Dividend} = 10,000 + 10,000 = Rs. 20,000
   \]

4. **Calculate the Financial Break-even Point (EBIT):**
   The financial break-even point is the level of EBIT at which the company just covers its total financial obligations, resulting in a Net Income of zero.
   \[
   \text{EBIT} = \text{Interest} + \frac{\text{Post-tax Preference Dividend}}{1 - \text{Tax Rate}}
   \]
   However, since interest is already considered a pre-tax item, the formula becomes:
   \[
   \text{Financial Break-even Point} = \text{Interest} + \text{Preference Dividend (pre-tax adjusted)}
   \]
   \[
   \text{Financial Break-even Point} = 10,000 + 20,000 = Rs. 30,000
   \]

### Conclusion:
The financial break-even point for the company is **Rs. 30,000** of EBIT.

Would you like to go over any of these calculations in more detail? Here are a few related questions:

1. How would the financial break-even point change if the debt increased to Rs. 200,000?
2. What impact does the tax rate have on the financial break-even point?
3. How does the presence of preference shares affect the break-even point compared to a company without them?
4. What would the break-even point be if the preference share dividend rate was 8% instead of 10%?
5. How do changes in interest rates on debt affect the financial break-even point?

**Tip:** The financial break-even point is crucial for understanding the minimum level of operating income needed to avoid losses due to fixed financial costs.

Learn how to calculate the financial break-even point for a business plan with detailed calculations. Includes scenarios with debt, equity share capital, preference shares, and tax implications. Suitable for financial analysts and business owners.

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