Company’s capital structure consists of the following: Particulars Rs. Equity Shares of Rs. 100 each Retained Earnings 9% Preference shares 7% Debenture 20 lakhs 10 lakhs 12 lakhs 8 Lakhs Total 50 Lakhs The company earns 12% on capital. The Income Tax rate is 50%. The company requires a sum of Rs. 25 lakhs to finance expansion programme for which following alternatives are available to it. (i) Issue of 20,000 Equity Shares at a premium of Rs. 25 per share (ii) Issue of 10% Preference shares (iii) Issue of 8% Debentures It is estimated that P/E ratio in the cases of equity, preference and debenture financing would be 21.4, 17 and 15.7 respectively. EPS of case (ii) Answer 1 EPS of case (i) Answer 2 MPS of case (i) Answer 3 Which option to select as per EPS Answer 4 MPS of case (iii) Answer 5 EPS of case (iii) Answer 6 MPS of case (ii) Answer 7
Company’s capital structure consists of the following: Particulars Rs. Equity Shares of Rs. 100 each Retained Earnings 9% Preference shares 7% Debenture 20 lakhs 10 lakhs 12 lakhs 8 Lakhs Total 50 Lakhs The company earns 12% on capital. The Income Tax rate is 50%. The company requires a sum of Rs. 25 lakhs to finance expansion programme for which following alternatives are available to it. (i) Issue of 20,000 Equity Shares at a premium of Rs. 25 per share (ii) Issue of 10% Preference shares (iii) Issue of 8% Debentures It is estimated that P/E ratio in the cases of equity, preference and debenture financing would be 21.4, 17 and 15.7 respectively. EPS of case (ii) Answer 1 EPS of case (i) Answer 2 MPS of case (i) Answer 3 Which option to select as per EPS Answer 4 MPS of case (iii) Answer 5 EPS of case (iii) Answer 6 MPS of case (ii) Answer 7
Company’s capital structure consists of the following: Particulars Rs. Equity Shares of Rs. 100 each Retained Earnings 9% Preference shares 7% Debenture 20 lakhs 10 lakhs 12 lakhs 8 Lakhs Total 50 Lakhs The company earns 12% on capital. The Income Tax rate is 50%. The company requires a sum of Rs. 25 lakhs to finance expansion programme for which following alternatives are available to it. (i) Issue of 20,000 Equity Shares at a premium of Rs. 25 per share (ii) Issue of 10% Preference shares (iii) Issue of 8% Debentures It is estimated that P/E ratio in the cases of equity, preference and debenture financing would be 21.4, 17 and 15.7 respectively. EPS of case (ii) Answer 1 EPS of case (i) Answer 2 MPS of case (i) Answer 3 Which option to select as per EPS Answer 4 MPS of case (iii) Answer 5 EPS of case (iii) Answer 6 MPS of case (ii) Answer 7
Company’s capital structure consists of the following:
Particulars
Rs.
Equity Shares of Rs. 100 each
Retained Earnings
9% Preference shares
7% Debenture
20 lakhs
10 lakhs
12 lakhs
8 Lakhs
Total
50 Lakhs
The company earns 12% on capital. The Income Tax rate is 50%. The company requires a sum of Rs. 25 lakhs to finance expansion programme for which following alternatives are available to it.
(i) Issue of 20,000 Equity Shares at a premium of Rs. 25 per share
(ii) Issue of 10% Preference shares
(iii) Issue of 8% Debentures
It is estimated that P/E ratio in the cases of equity, preference and debenture financing would be 21.4, 17 and 15.7 respectively.
EPS of case (ii)
Answer 1
EPS of case (i)
Answer 2
MPS of case (i)
Answer 3
Which option to select as per EPS
Answer 4
MPS of case (iii)
Answer 5
EPS of case (iii)
Answer 6
MPS of case (ii)
Answer 7
Definition Definition Type of stock which is granted priority over dividend distributions as compared to common stockholders. Preferred stocks also do not carry any voting rights. Notably, in a case where a company is going to be liquidated, preferred stockholders have a priority claim on the value of assets of the company as quoted in the balance sheet, as compared to the common stockholders.
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Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
