2. M Ltd. expects an annual return on assets of 10%. Currently, it has total assets of

`6,00,000 financed by equity share capital of `3,00,000 of face value of `10 and 8% debt of

`3,00,000. It is now contemplating to raise its Debt Capital to `400,000 keeping the total capital unchanged. Calculate EPS of the firm both under existing and proposed situation and comment on how far the firm is successful in Trading on Equity. Will the decision be beneficial if the Rate of Return on assets declines to 7%? Tax rate is 50%.