Partial Income Statement of Surya CompanyRs 10,000,0002,000,000Rs 8,000,0003.2,000,000Rs 4,800,000EBIT (20% of total assets)Less: Interest on debtЕBTLess: Tax @ 40%EAT (or NI)Number of shares outstanding100,000Rs. 48EPSAnswer the following questions:Why does the firm want to raise long-term fund?a.b.Discuss merits and demerits of bond financing and preferred stock financing.Explain the features of preferred stock.How many bonds are to be issued to raise required fund under bond financing.с.d.How many preferred stocks must be issued under preferred stock financing toraise required fund?Show the effect of each alternative in firm's balance sheet, income statement ande.f.earning per share (assume EBIT is 20 percent of total assets). Mini Casecase situations and answer the questions that follow:Electricity Company hasne new investment opportunity for which company needs large amount ofgrown rapidly during the past 5 years. Recently, it hasSuryaexploredexp finance fixed assets and permanent current asset. Discussions with anment banker have resulted in the decision to raise net Rs 20 million at this time.nany's management thinks that stock is under priced. Moreover company does notCothe fund forever. Therefore, investment bankers have assured the firm that thefollowing alternatives are feasible.Alternative 1: Bond financing.Par value of a bond is Rs 1,000. Coupon rate is 10 percent.Alternative 2: Preferred stock financing.Preferred stock has par value Rs 100 and can be issued at par. Dividend rate is 12percent. Preferred stock should include call provision.Surya Company has the following balance sheet and income statement. You havebeen asked to answer following questions.Partial Balance Sheet of Surya CompanyCurrent assetsFixed assetsRs 20,000,000 | Current liabilities30,000,000 10% Long-term debtCommon stockRs 10,000,00020,000,000(100,000 shares @ Rs 100)Retained earningsRs 50,000,000Total assetsRs 50,000,000 Total liabilities & capital

Since the question contains more than 3 sub questions we will be answering only the first 3. There…

wer the ques s grown rapidly during th. opportunity for which co and permanent curren red in the decision to raisE s that stock is under price ore, investment bankers ble. 1,000. Coupon rate is 10 p financing. alue Rs 100 and can be is hould include call provis- following balance sheet a owing questions. Balance Sheet of Surya Rs 20,000,000 Current liabil 30. 000.000 10% Long-te

wer the ques s grown rapidly during th. opportunity for which co and permanent curren red in the decision to raisE s that stock is under price ore, investment bankers ble. 1,000. Coupon rate is 10 p financing. alue Rs 100 and can be is hould include call provis- following balance sheet a owing questions. Balance Sheet of Surya Rs 20,000,000 Current liabil 30. 000.000 10% Long-te

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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