Write down the Summary of your understanding within 300 Words, in an outcome oriented manner. Please write how and where will you apply the concepts learned and how will it impact your overall growth

Capital structure refers to the mix of a firms capitalization (i.e. mix of long term sources of funds such as debentures, preference share capital, equity share capital and retained earnings for meeting total capital requirement). While choosing a suitable financing pattern, certain factors like cost, risk, control, flexibility and other considerations like nature of industry, competition in the industry etc. should be considered. The basic objective of financial management is to design an appropriate capital structure which can provide the highest earnings per share (EPS) over the firms expected range of earnings before interest and taxes (EBIT). EPS measures a firms performance for the investors. The level of EBIT varies from year to year and represents the success of a firms operations. EBIT-EPS analysis is a vital tool for designing the optimal capital structure of a firm. The objective of this analysis is to find the EBIT level that will equate EPS regardless of the financing plan. Best of Luck Ltd., a profit making company, has a paid-up capital of INR. 100 lakhs consisting of 10 lakhs ordinary shares of INR.10 each. Currently, it is earning an annual pre-tax profit of INR. 60 lakhs. The companys shares are listed and are quoted in the range of INR.50 to 80. The management wants to diversify production and has approved a project which will cost INR. 50 lakhs and which is expected to yield a pre-tax income of INR. 40 lakhs per annum. To raise this additional capital, the following options are under consideration of the management: (a) To issue equity share capital for the entire additional amount. It is expected that the new shares (face value of INR. 10) can be sold at a premium of INR. 15. (b) To issue 16% non-convertible debentures of INR. 100 each for the entire amount. (c) To issue equity capital for INR. 25 lakhs (face value of INR. 10) and 16% non-convertible debentures for the balance amount. In this case, the company can issue shares at a premium of INR. 40 each. You are required to advise the management as to how the additional capital can be raised, keeping in mind that the management wants to maximise the earnings per share to maintain its goodwill. The company is paying income tax at 50%.