ABC Ltd, has currently an equity share capital of Rs.15 lacs (Face value Rs.10). The company...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
ABC Ltd, has currently an equity share capital of Rs.15 lacs (Face value Rs.10). The company is looking for diversification of its business for which it requires a sum of Rs.25 lacs. The company has the following alternatives to raise the fund. i) Completely through equity shares ii) Rs.10 lacs through equity shares and the balance through 12% debentures iii) Rs.10 lacs through equity shares and the balance through 11% preference shares iv) Rs.10 lacs through equity shares, Rs.10 lacs through 13% loans and the balance through 11% preference shares. The expected EBIT is Rs.8 lacs and the corporate tax rate is 30%. Advise the company to select the best alternative. ABC Ltd, has currently an equity share capital of Rs.15 lacs (Face value Rs.10). The company is looking for diversification of its business for which it requires a sum of Rs.25 lacs. The company has the following alternatives to raise the fund. i) Completely through equity shares ii) Rs.10 lacs through equity shares and the balance through 12% debentures iii) Rs.10 lacs through equity shares and the balance through 11% preference shares iv) Rs.10 lacs through equity shares, Rs.10 lacs through 13% loans and the balance through 11% preference shares. The expected EBIT is Rs.8 lacs and the corporate tax rate is 30%. Advise the company to select the best alternative.
Expert Answer:
Answer rating: 100% (QA)
To advise the company on the best alternative for raising funds we need to calculate the earnings available for equity shareholders under each option and compare them The alternative with the highest ... View the full answer
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Posted Date:
Students also viewed these accounting questions
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
Suppose you have been hired as a financial consultant to Defense Electronics, Inc. (DEI), a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). The company...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Ito calculus and Ito's Lemma. Suppose dZ is the increment of a Wiener process and dX = (X(t), t)dt + o(X(t), t)dZ. (a) If F(X,t) = e"X, what is dF(X,t) (interpreted in the sense of Ito calculus)? (b)...
-
A square frame carrying a current I = 0.90 A is located in the same plane as a long straight wire carrying a current I0 = 5.0 A. The frame side has a length a = 8.0 cm. The axis of the frame passing...
-
Northern Pacific Heating and Cooling Inc. has a 6-month backlog of orders for its patented solar heating system. To meet this demand, management plans to expand production capacity by 40 percent with...
-
Zeta Safety, Inc., began the year with $15,000 of common stock and $34,000 of retained earnings. On August 5, investors bought $19,000 of additional stock in the business. On October 22, the business...
-
Frequency response data for a process are tabulated below. These results were obtained by introducing a sinusoidal change in the controller output (under manual control) and recording the measured...
-
Labor Imperial Devices (ID) has offered to supply the state government with one model of its security screening device at "cost plus 20 percent." ID operates a manufacturing plant that can produce...
-
Bangs Leisure Chairs produces three types of hand-crafted outdoor chairs: sling chairs, Adirondack chairs, and hammocks. After reviewing the labor required for each type of chair, the following...
-
According to the Classical Quantity Theory of interest rate determination, if the velocity of money is constant, inflation is expected to be 3.1%, and the money supply is expected to grow at 5.2%,...
-
Warsdisrupt peace & prosperity through the destruction of economic resources (land, labor,& capital). Europe experienced two horrific ones in the 20th century and after the second one they had to...
-
The percentage of mortgage loan applications that were denied in one year is summarized by company in the following stem and leaf plot. Complete parts (a) and (b) below. Describe the shape of the...
-
The Metropolitan Bus Company (MBC) purchases diesel fuel from American Petroleum Supply. In addition to the fuel cost, American Petroleum Supply charges MBC $450 per order to cover the expenses of...
-
A coil of wire is comprised of 5 turns, has a current of 2 mA running through it, and a net magnetic field at its center of B is equal to the start fraction mu naught over 40 end fraction times T....
-
After responding to a welfare check at a local home, Maryland law enforcement find a tragic scene of two individuals who have been murdered. When officers arrive on scene, they find an original...
-
A bakery sells three croissants per day. When the bakery orders croissants, it takes seven days for them to arrive. Calculate and interpret the reorder point for croissants.
-
According to a New York Times columnist, The estate tax affects a surprisingly small number of people. In 2003, . . . just 1.25 percent of all deaths resulted in taxable estates, with most of them...
-
Suppose you are valuing a healthy, growing, profitable firm and you project that the firm will generate negative free cash flows for equity shareholders in each of the next five years. Can you use...
-
Describe the difference between the profit margin for ROA and the profit margin for ROCE. Explain why each profit margin is appropriate for measuring the rate of ROA and the rate of ROCE,...
-
Nike, Inc.s principal business activity involves the design, development, and worldwide marketing of athletic footwear, apparel, equipment, accessories, and services for serious and recreational...
-
Describe circumstances that might cause a client to understate assets such as cash and financial investments.
-
Select the best answer for each of the following situations and give reasons for your choice. a. You have been assigned to the year-end audit of a financial institution and are planning the timing of...
-
What prevents the person who opens incoming mail from being able to abstract cash collections from customers?
Study smarter with the SolutionInn App