Q12)A companys capital structure consists of the following. Amount in () Eauity share of ₹100 Each Retained Earnings 9% Preference shares 10% Debentures 15,00,000 Total The company earns 10% on its capital. The Income tax Rate is 50%. The company requires a sum of ₹25,00,000 to finance its Expansion programme for which the following alternatives are Available to it:- 1) Issue of 20,000 equity shares at a premium of 25 per share. 2) Issue of 10% preference shares. 3) Issue of 8% debentures. Which of the three financing alternatives would you recommend and why?
Q12)A companys capital structure consists of the following. Amount in () Eauity share of ₹100 Each Retained Earnings 9% Preference shares 10% Debentures 15,00,000 Total The company earns 10% on its capital. The Income tax Rate is 50%. The company requires a sum of ₹25,00,000 to finance its Expansion programme for which the following alternatives are Available to it:- 1) Issue of 20,000 equity shares at a premium of 25 per share. 2) Issue of 10% preference shares. 3) Issue of 8% debentures. Which of the three financing alternatives would you recommend and why?
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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Question
Q12)A companys capital structure consists of the following.
Amount in ()
Eauity share of ₹100 Each
9%
10% Debentures
15,00,000
Total
The company earns 10% on its capital. The Income tax Rate is 50%. The company requires a sum of ₹25,00,000 to finance its Expansion programme for which the following alternatives are Available to it:-
1) Issue of 20,000 equity shares at a premium of 25 per share.
2) Issue of 10% preference shares.
3) Issue of 8% debentures.
Which of the three financing alternatives would you recommend and why?
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