Capital Structure Problem No. 3 was solved and discussed in the online session delivered on 08/08/2020.
Problem No. 3:
The sales and EBIT for a company during the year 2019 were ₹ 1750000 and ₹ 450000 respectively. During that year the expenses on account of interest was ₹ 4000 and on preferred dividend was ₹ 10000. These fixed charges are expected to continue during 2019. For the year the company is planning an expansion which will cost ₹ 175000 and expected to increase EBIT to ₹ 550000. The company is considering the following alternatives to finance the expansion:
(a) Issue of 5000 equity shares at ₹ 35 each. The company presently has 40000 equity shares.
(b) Issue ₹ 175000 of 15 year bond at 8 %.
(c) Issue of additional preference shares @ 8.5 % for ₹ 175000.
You are required to calculate EPS for 2020 at the expected EBIT of ₹ 550000 for the three financing alternatives and suggest suitable alternatives. Assume Income Tax @ 50 %.
Source: Ravi Kishore, Financial Management
No comments:
Post a Comment