24 MANTRA Ltd. is a company engaged in production of organic food.It sells its products through indirect channels of distribution. But, considering the sudden surge in the demand for organic products, the company is now inclined to start its online portal for direct marketing. The financial managers of the company are planning to use debt in order to take advantage of Trading on Equity. In order to finance its expansion plans, it is planning to raise a debt capital of Rs. 40 lakhs through a loan @ 10% from an industrial bank. The present capital base of the company comprises of 9 lakh equity shares of Rs. 10 each. The rate of tax is 30%. In the context of the above case:1.What are the two conditions necessary for taking advantage of Trading on Equity? 2.Assuming the expected rate of return on investment to be same as it was for thecurrent year i.e. 15% , do you think the Finance Manager will be able tomeet their goal?Show your workings clearlyfor two situations:-SITUATION I-without Debt of Rs.40 Lakhs and no expansion plans and SITUATION II-with Debt of Rs.40 Lakhs.
24 MANTRA Ltd. is a company engaged in production of organic food.It sells its products through indirect channels of distribution. But, considering the sudden surge in the demand for organic products, the company is now inclined to start its online portal for direct marketing. The
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