Q50980e XYZ Company has currently and equity share capital of s 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 four possible financing plans. The options are:

Entirely through equity shares

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

Rs. 15 lakhs in equity shares of Rs. 100 each and the balance through preference shares with 5% dividend.

Rs. 10 lakhs in equity shares of Rs. 100 each and the balance through long-term borrowings at 9% interest p.a.

Best for IIBSM MBA Finance Solved Assignment and others

Solution:

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

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