=+One is a 1 for 10 rights issue at 150p. The other is to borrow £30 million at 8 per cent a year for 10 years (Ignore transaction costs.) Annual operating profit (EBIT)

is currently £54 million. Assume a tax rate of 30 per cent on profits.

a. Calculate and compare the following ratios before expansion and after expansion under each of the financing alternatives:

i. Earnings Per Share (EPS)

ii. Interest cover