[amp_mcq option1=”Both plans be rejected” option2=”Both plans are good” option3=”One is better than other” option4=”None of the above” correct=”option3″]
The correct answer is C. One is better than other.
The indifference level of EBIT is the level of EBIT at which the two capital plans are equally attractive. If the expected EBIT of one plan is more than the indifference level of EBIT, then that plan is better than the other plan.
Option A is incorrect because both plans cannot be rejected if the expected EBIT of one plan is more than the indifference level of EBIT.
Option B is incorrect because both plans cannot be good if the expected EBIT of one plan is more than the indifference level of EBIT.
Option D is incorrect because one plan must be better than the other if the expected EBIT of one plan is more than the indifference level of EBIT.