● Y Ltd. has total assets of `5,00,000 financed by `2,50,000 equity share capital (`10) and `2,50,000, 10% Preference Share Capital. The firm expects an annual return on assets of 22%. It is now contemplating to raise its Preference Share Capital to `3,00,000 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 18%? Tax rate is 50%.