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a) PRIYA Construction Ltd. is planning to raise 1,00,00,000 through any of the following two alternatives: Plan A: 50% through Equity, 30 % through Debentures
a) PRIYA Construction Ltd. is planning to raise 1,00,00,000 through any of the following two alternatives: Plan A: 50% through Equity, 30 % through Debentures and 20% through Preference share capital Plan B: 60% through Equity and 40 % through Debentures. The company has procured the following relevant information: Expected EBIT 50,00,000 Current corporate tax rate 35%; Interest rate on Debentures 12% and preference dividend rate is 15%. The company can issue the shares of 100 each (Face value) at a premium of 100% on face value per share. For both the plans, please calculate (a) EPS (b) Degree of Financial Leverage and (c) Financial Break-Even Point, (d) Give your managerial observations regarding the financial leverage and Financial BEP calculated for both the plans
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