Read the following case and answer the questions; Case: Divya Electronics Divya Electronics was promoted about twenty years by Dipankar Mitra, who continues to be the Executive Chairman of the firm. Initially, the firm employed a debt-equity ratio of 1.5:1 as the promoter had limited resources. While the firm had a few bad patches, it has performed fairly well and has been reasonably profitable. Over time, the proportion of debt in the capital structure diminished. The firm also issued bonus shares on two occasions once before making its IPO eight years ago and once subsequently. The financial statements of the firm for the just concluded financial year are given below. The profit and loss account has been cast in the contribution format to facilitate the calculation of leverages. The current market price per share is Rs.115, giving a retrospective PE ratio of 16.43 , the highest in its history. Dipankar Mitra and his family holds 4.5 crore shares of Divya Electronics. The rest is held more or less equally by institutional investors and retail investors. The firm has an expansion project on hand that will require an outlay of Rs. 200 crore which will be supported by external financing. The expansion project is expected to generate an annual revenue of Rs.240 crore. Its variable costs will be 60 percent of revenues and its fixed operating costs would be Rs. 50 crore. The expansion can be completed quickly. EMAN Consultants, the merchant bankers of Divya Electronics, believe that Divya Electronics can make a public issue of equity shares at Rs.106. The issue expenses, however, will be Rs. 6 per share. The other option is to privately place debentures carrying an interest rate of 8 percent. The board of directors of Divya Electronics would be meeting shortly to decide on the means of financing to be adopted for the proposed expansion plan. You have been requested to present an analysis of the two options. In particular, you have been asked to; (a) Compute the EPS-PBIT indifference point for the two financing options. b) Calculate the EPS for the following year under the two financing options assuming that the expansion project would be fully operational. Show how the degree of total leverage will change under the tw financing options. Highlight any other issues that you believe are important for taki he decision. ratio of 16.43 , the hrice per snare is Rs.115, giving a retrospective PE ratio of 16.43 , the highest in its history. Dipankar Mitra and his family holds 4.5 crore shares of Divya Electronics. The rest is held more or less equally by institutional investors and retail investors. The firm has an expansion project on hand that will require an outlay of Rs. 200 crore which will be supported by external financing. The expansion project is expected to generate an annual revenue of Rs.240 crore. Its variable costs will be 60 percent of revenues and its fixed operating costs would be Rs. 50 crore. The expansion can be completed quickly. EMAN Consultants, the merchant bankers of Divya Electronics, believe that Divya Electronics can make a public issue of equity shares at Rs.106. The issue expenses, however, will be Rs.6 per share. The other option is to privately place debentures carrying an interest rate of 8 percent. The board of directors of Divya Electronics would be meeting shortly to decide on the means of financing to be adopted for the proposed expansion plan. You have been requested to present an analysis of the two options. In particular, you have been asked to; (a) Compute the EPS-PBIT indifference point for the two financing options. (b) Calculate the EPS for the following year under the two financing options assuming that the expansion project would be fully operational. (c) Show how the degree of total leverage will change under the two financing options. Highlight any other issues that you believe are important for taking the decision. Read the following case and answer the questions; Case: Divya Electronics Divya Electronics was promoted about twenty years by Dipankar Mitra, who continues to be the Executive Chairman of the firm. Initially, the firm employed a debt-equity ratio of 1.5:1 as the promoter had limited resources. While the firm had a few bad patches, it has performed fairly well and has been reasonably profitable. Over time, the proportion of debt in the capital structure diminished. The firm also issued bonus shares on two occasions once before making its IPO eight years ago and once subsequently. The financial statements of the firm for the just concluded financial year are given below. The profit and loss account has been cast in the contribution format to facilitate the calculation of leverages. The current market price per share is Rs.115, giving a retrospective PE ratio of 16.43 , the highest in its history. Dipankar Mitra and his family holds 4.5 crore shares of Divya Electronics. The rest is held more or less equally by institutional investors and retail investors. The firm has an expansion project on hand that will require an outlay of Rs. 200 crore which will be supported by external financing. The expansion project is expected to generate an annual revenue of Rs.240 crore. Its variable costs will be 60 percent of revenues and its fixed operating costs would be Rs. 50 crore. The expansion can be completed quickly. EMAN Consultants, the merchant bankers of Divya Electronics, believe that Divya Electronics can make a public issue of equity shares at Rs.106. The issue expenses, however, will be Rs. 6 per share. The other option is to privately place debentures carrying an interest rate of 8 percent. The board of directors of Divya Electronics would be meeting shortly to decide on the means of financing to be adopted for the proposed expansion plan. You have been requested to present an analysis of the two options. In particular, you have been asked to; (a) Compute the EPS-PBIT indifference point for the two financing options. b) Calculate the EPS for the following year under the two financing options assuming that the expansion project would be fully operational. Show how the degree of total leverage will change under the tw financing options. Highlight any other issues that you believe are important for taki he decision. ratio of 16.43 , the hrice per snare is Rs.115, giving a retrospective PE ratio of 16.43 , the highest in its history. Dipankar Mitra and his family holds 4.5 crore shares of Divya Electronics. The rest is held more or less equally by institutional investors and retail investors. The firm has an expansion project on hand that will require an outlay of Rs. 200 crore which will be supported by external financing. The expansion project is expected to generate an annual revenue of Rs.240 crore. Its variable costs will be 60 percent of revenues and its fixed operating costs would be Rs. 50 crore. The expansion can be completed quickly. EMAN Consultants, the merchant bankers of Divya Electronics, believe that Divya Electronics can make a public issue of equity shares at Rs.106. The issue expenses, however, will be Rs.6 per share. The other option is to privately place debentures carrying an interest rate of 8 percent. The board of directors of Divya Electronics would be meeting shortly to decide on the means of financing to be adopted for the proposed expansion plan. You have been requested to present an analysis of the two options. In particular, you have been asked to; (a) Compute the EPS-PBIT indifference point for the two financing options. (b) Calculate the EPS for the following year under the two financing options assuming that the expansion project would be fully operational. (c) Show how the degree of total leverage will change under the two financing options. Highlight any other issues that you believe are important for taking the decision