YZ Company has currently and equity share capital of Rs. 40 lakhs consisting of 40,000 equity shares of Rs. 100 each. The management is planning to raise another Rs. 30 lakhs to finance a major programme of expansion through one of the two possible financing plans. The options are: A: Entirely through equity shares B: Rs. 15 lakhs in equity shares of Rs. 100 each and the balance in 8% debentures. The company’s EBIT will be Rs. 15 lakhs. Assuming corporate tax of 50%. Determine the EPS and financial leverage.

YZ Company has currently and equity share capital of Rs. 40 lakhs consisting of 40,000 equity shares of Rs. 100 each. The management is planning to raise another Rs. 30 lakhs to finance a major programme of expansion through one of the two possible financing plans. The options are: A: Entirely through equity shares B: Rs. 15 lakhs in equity shares of Rs. 100 each and the balance in 8% debentures. The company’s EBIT will be Rs. 15 lakhs. Assuming corporate tax of 50%. Determine the EPS and financial leverage.

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter15: Harvesting The Business Venture Investment

Section: Chapter Questions

Problem 1eM

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Question

XYZ Company has currently and equity share capital of Rs. 40 lakhs consisting of 40,000 equity shares of Rs. 100 each. The management is planning to raise another Rs. 30 lakhs to finance a major programme of expansion through one of the two possible financing plans. The options are:

A: Entirely through equity shares

B: Rs. 15 lakhs in equity shares of Rs. 100 each and the balance in 8% debentures.

The company’s EBIT will be Rs. 15 lakhs. Assuming corporate tax of 50%. Determine the EPS and financial leverage.

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