The promoters of a company are planning two different cost structures as follows:

i) Variable cost 70% of sales, Fixed Cost Rs30 lacs

Or

ii) Variable Cost 60% of sales, Fixed Cost 40 lacs

Projected average sales Rs.140 lacs.

They consider two alternative financing alternatives for the above:

(i) Equity Rs.50 lacs and Debt Rs.50 Lacs, or

(ii) Equity Rs.40 lacs, Debt Rs.60 lacs,

For the first alternative, interest rate is worked out to be 8% and for the second alternative it is 10%. Tax Rate is 25%.Which combination of alternatives is the best decision for investment. Calculate the leverage and comment