The current capital structure of the company consists of 10,00,000 equity shares of Rs.10 each and 30,000 debentures of Rs.100 each carrying annual coupon of 12%. The company is in need of Rs.50 lakhs for expansion. It is considering two financing options. The first one is to raise the entire amount by issue of 5,00,000 equity shares at Rs.10 per share. The second option is to issue 3,00,000 equity shares at Rs.10 each and raise the remaining Rs.20 lakhs through long term debt, paying 12% interest per annum. The tax rate applicable to the company is 30%. If the EBIT after expansion is expected to be Rs.40 lakhs, which alternative will you recommend the firm? Why?

The current capital structure of the company consists of 10,00,000 equity shares of Rs.10 each and 30,000 debentures of Rs.100 each carrying annual coupon of 12%. The company is in need of Rs.50 lakhs for expansion. It is considering two financing options. The first one is to raise the entire amount by issue of 5,00,000 equity shares at Rs.10 per share. The second option is to issue 3,00,000 equity shares at Rs.10 each and raise the remaining Rs.20 lakhs through long term debt, paying 12% interest per annum. The tax rate applicable to the company is 30%. If the EBIT after expansion is expected to be Rs.40 lakhs, which alternative will you recommend the firm? Why?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Q.47 Using the repeatability assumption, what is the PW of Alternative Y? O. $22,436 O. $58,192 O. $7,740 O. $12,385 Q. 48 Using coterminated assumption, what is the FW of Alternative X? O. $12,385 O. $7.740 O. $22,436 O. $58,192 Q. 49 Using the coterminated assumption, what is the FW of Alternative Y? O. $22,436 O. $58,192 O. $12,385 O. $7,740 Q. 50 Which alternative is selected? O. Alternatíve X O. Alternative Y O. neither X nor Y is economically attractive O. X and Y are equally attractive
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Piper Specialty Store Ltd. completed the following merchandising transactions in the month of May 2021. At the beginning of May, Piper's ledger showed Cash $7,000; Accounts Receivable $1,900; Inventory $3,500; Common Shares $7,800; and Retained Earnings $4,600. Piper Specialty has experienced a return rate of 2% of sales and uses a perpetual inventory system. Purchased merchandise on account from Depot Wholesale Supply Ltd. for $5,340, terms 1/10, n/30, FOB shipping point. May 3 Freight charges of $137 were paid by the appropriate party on the merchandise purchased on May 1. Sold merchandise on account to Yip Company for $3,500, terms n/30, FOB destination. The cost of the merchandise was $2,400. 7 Freight charges of $86 were paid by the appropriate party on the May 4 sale. 8. Received a $140 credit from Depot Wholesale Supply when merchandise was returned. Paid Depot Wholesale Supply in full. 11 Purchased supplies for $390 cash. 14 Received payment in full from Yip Company for…
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