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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

Deshmuk Ltd provides you with the following figures: image text in transcribed 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

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