Question
3) a) Ramco Ltd wishes to raise capital of Rs. 30,00,000 for expansion. Existing of the company comprises of 10000 equity shares of 100 each.
3) a) Ramco Ltd wishes to raise capital of Rs. 30,00,000 for expansion. Existing of the company comprises of 10000 equity shares of 100 each. The firm has four alternative financial plans: i. ii. iii. iv. It can raise the entire amount in the form of equity capital. It can raise 50 per cent as equity capital and 50 per cent as 5% debentures. It can raise the entire amount as 10% debentures It can raise 50 per cent as equity capital and 50 per cent as 5% preference capital. Further assume that the existing EBIT are Rs. 1,80,000, the tax rate is 30 per cent, the market price per share is Rs. 100 under all the four alternatives. Calculate EPS under all the options and suggest suitable financial plan for the company. You 18 Marks] conclusion should be supported by reasoned argument.
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