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Question One KLMN co limited needs Tzs 500,000 for the construction of a new plant. The following three financial alternatives are feasible: a) The company
Question One KLMN co limited needs Tzs 500,000 for the construction of a new plant. The following three financial alternatives are feasible: a) The company may issue 50,000 equity shares at Tzs 10 per share b) The company may issue 25,000 equity share at Tzs 10 per share and 25,000 debenture of Tzs 100 domination bearing an 8 per cent rate of interest. c) The company may issue 25,000 equity shares at Tzs 10 per share and 2,500 preference shares at Tzs 100 per share bearing 8 per cent rate of dividend. If the possible company's earnings before interest and taxes (EBIT) is 100,000, assume corporate tax rate of 30%; what is the earning per share under each of the three financial alternatives (in each of the possible EBIT)? Which alternative would you recommend and why
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