ABC Ltd, a profit making company, has a paid-up capital of Rs. 100 lakhs consisting of 10 lakhs ordinary shares of Rs. 10 each. The management wants to diversify production and has approved a project which will cost Rs. 50 lakhs. To raise this additional capital, the following options are under consideration of the management:

PLAN A: To issue Equity Share 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.

PLAN B: To issue 16% Non-Convertible Debentures of Rs.100 each for the entire amount

PLAN C: To issue Equity Capital for Rs.25 lakhs (face value of Rs.10) and 16% Non- Convertible Debentures for the balance amount.

In PLAN C, the company can issue shares at a premium of Rs. 40 each. Assume existing EBIT to be Rs 10 million and income tax rate at 50% for all three financial plans.

1. Kindly advise which Financial Plan should be selected by the management. Comment(Comment carries 3 marks).