Question
MGM Limiteds present capital structure consists of 20 million equity shares of Rs.10 each. It requires Rs.60 million of external financing. It is considering two
MGM Limiteds present capital structure consists of 20 million equity shares of Rs.10 each. It requires Rs.60 million of external financing. It is considering two alternatives: Alternative 1 : Issue of 3 million equity shares of Rs.10 par at Rs.15 each and 1.5 million preference shares of Rs.10 par, carrying a dividend rate of 10 percent. Alternative 2 : Issue of 2 million equity shares of Rs.10 par at Rs.15 each and debentures for Rs.30 million carrying an interest rate of 11 percent The companys tax rate is 35 percent? What is the EPS-PBIT indifference point?
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