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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?

Understanding Business
Understanding Business
12th Edition
ISBN:9781259929434
Author:William Nickels
Publisher:William Nickels
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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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?

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