Problem 5: A Company has a capital of Rs. 400000 divided into shares of Rs. 10 Each. It has major expansion programme requiring an investment of another Rs. 200000. The management is considering the following alternatives for raising this amount: a. Issue of 20000 shares of Rs. 10 each b. Issue of 20000, 12% Preference shares of Rs. 10 each c. Issue of 10% Debentures of Rs. 200000 The company has a EBIT of Rs. 120000 pa. You are required to calculate the effect of each of the above modes of financing on the EPS presuming tax rate to be 50%, EBIT continues to be the same even after expansion and EBIT increases by 40%
Problem 5: A Company has a capital of Rs. 400000 divided into shares of Rs. 10 Each. It has major expansion programme requiring an investment of another Rs. 200000. The management is considering the following alternatives for raising this amount: a. Issue of 20000 shares of Rs. 10 each b. Issue of 20000, 12% Preference shares of Rs. 10 each c. Issue of 10% Debentures of Rs. 200000 The company has a EBIT of Rs. 120000 pa. You are required to calculate the effect of each of the above modes of financing on the EPS presuming tax rate to be 50%, EBIT continues to be the same even after expansion and EBIT increases by 40%
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 5:
A Company has a capital of Rs. 400000 divided into shares of Rs. 10 Each. It has major
expansion programme requiring an investment of another Rs. 200000. The management is
considering the following alternatives for raising this amount:
a. Issue of 20000 shares of Rs. 10 each
b. Issue of 20000, 12% Preference shares of Rs. 10 each
c. Issue of 10% Debentures of Rs. 200000
The company has a EBIT of Rs. 120000 pa. You are required to calculate the effect of each of
the above modes of financing on the EPS presuming tax rate to be 50%, EBIT continues to be
the same even after expansion and EBIT increases by 40%
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