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 9% 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 |
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