HIC will use Rs. 3,50,0000 debt from its balance sheet (cash and marketable securities) and Rs. 1,00,000 new debt - bearing interest at the rate of 10% to repurchase 25000 shares at the price Rs. 18.00 per share

a) How would such buyback affect the HIC? Consider impact on, among other things, Earning Per Share (EPS), Return on Equity (ROE), Debt ratio, Interest coverage ratio. (4 M)

b) Do you recommend buyback? Explain with reasons. (2 M)

Relevant information related to HIC Ltd

Current Stock Price(Rs./per share)12

Cash and marketable securities (Rs.)4,00,000

Current Debt (Rs.)0Equity (Rs.)8,00,000

Number of share1,00,000

EBIT (Rs.)70,000

Tax rate30%

Other Income: 10% of the cash and marketable securities