Deshmuk Ltd provides you with the following figures: The company has undistributed reserves of Rs.6,00,000. Deshmuk Ltd requires Rs.4,00,000 for expansion. This amount will earn at the same rate as funds already employed. You are informed that a Debt/(Debt + Equity) higher than 35% will push the P/E ratio down to 8% and raise the interest rate on additional borrowings to 15%.You are required to ascertain the EPS and Probable Market Price of the Share: a) If the additional Funds are raised through debt financing b) If the additional Funds are raised through equity financing

Particulars EBIT Less: Interest on debentures@13% PBT Income tax @40% PAT Number of equity shares (Rs.10 each) EPS Current Market Price PE ratio (Price/EPS) Amount 500000 78000 422,000 168,800 253200 60000 Rs.4.22 Rs.42 9.9526