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Lotus Herbal company’s capital structure consists of 1.5 million equity shares and 500,000 preference shares. Preference shares carry a dividend of Rs. 12 per share. The EPS is Rs. 2.00. The company requires Rs. 10 million of external financing for which it is considering 2 alternatives:- (i) issuing 1 million equity shares for Rs. 10 each, (ii) Issuing Rs. 10 million worth of Debentures carrying 15% interest. Compute the EPS-EBIT indifference point: a. when tax rate is 50%; b. There are no taxes

Lotus Herbal company’s capital structure consists of 1.5 million equity shares and 500,000 preference shares. Preference shares carry a dividend of Rs. 12 per share. The EPS is Rs. 2.00. The company requires Rs. 10 million of external financing for which it is considering 2 alternatives:- (i) issuing 1 million equity shares for Rs. 10 each, (ii) Issuing Rs. 10 million worth of Debentures carrying 15% interest. Compute the EPS-EBIT indifference point: a. when tax rate is 50%; b. There are no taxes

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Lotus Herbal company’s capital structure consists of 1.5 million equity shares and 500,000 preference shares. Preference shares carry a dividend of Rs. 12 per share. The EPS is Rs. 2.00. The company requires Rs. 10 million of external financing for which it is considering 2 alternatives:- (i) issuing 1 million equity shares for Rs. 10 each, (ii) Issuing Rs. 10 million worth of Debentures carrying 15% interest.

Compute the EPS-EBIT indifference point: a. when tax rate is 50%; b. There are no taxes

 

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