150 16 (Rs.lakhs) Particularlyears 1 2 3 4 5 Total PAT 480 575 635 650 685 3025 Depreciation 155 140 135 120 700 Interest on loan 162 125 87 50 440 Total 797 850 862 835 821 4165 Interest on term 162 125 50 16 440 loan Repayment of term 178 178 178 148 860 loan Total 340 303 265 228 164 1300 DSCR 2.34 2.81 3.25 3.66 5.00 3.20 87 178 30 (c) Comments: average interest coverage ratio is 10.50 times and average debt service coverage ratio is 3.20 times. As DSCR is higher than 2 it indicates the better debt serving capacity of the company. Interest coverage ratio is also higher and it indicates that the company is conservative in using its debt. Illustration 2 BEST Itd is a profit making company heaving paid up capital of Rs 100 lakhs consisting of 10 lakh ordinary share Rs 10 each. Currently it is earning an annual pre tax profit of Rs 60 lakhs. The company's shares are listed on BSE and are quated in the range of has approved a project which will cost Rs. 50 lakhs and which is expected to yield a pre-tax profit of Rs. 40 lakhs per annum. To raise this capital, the following options are under consideration of the management: (a) To issue equity capital for the entire additional amount. It is expected that the new shares (face value of Rs. 10) can be sold at a premium of Rs. 15 each. (b) To issue 16% non-convertible debentures of Rs. 100 each for the entire amount (c) To issue equity capital of Rs.25 lakhs (face value of Rs 10) and 16% non-convertible debentures foe the balance amount. In this case, the company can issue shares at a premium of rs 40 each. You are required to advise the management as to how the additional capital can be raised; keeping in mind the management wants to maximize the earnings per share to maintain its goodwill. The company is paying income tax at 30%