Kay Ltd. is a company manufacturing textiles. It has a share capital of Rs.60 lakhs. In...

 

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Kay Ltd. is a company manufacturing textiles. It has a share capital of Rs.60 lakhs. In the previous year, its earning per share was Rs.0.50. For diversification, the company requires an additional capital of Rs.40 lakhs. The company raised funds by issuing 10% debentures for the same. During the year, the company earned a profit of Rs.8 lakhs on the capital employed. It paid tax @ 40%. (a) State whether the shareholders gained or lost, in respect of earning per share on diversification. Show your calculations clearly. (b) Also state any three factors that favour the issue of debentures by the company as part of its capital structure. (CBSE, OD 2016) Kay Ltd. is a company manufacturing textiles. It has a share capital of Rs.60 lakhs. In the previous year, its earning per share was Rs.0.50. For diversification, the company requires an additional capital of Rs.40 lakhs. The company raised funds by issuing 10% debentures for the same. During the year, the company earned a profit of Rs.8 lakhs on the capital employed. It paid tax @ 40%. (a) State whether the shareholders gained or lost, in respect of earning per share on diversification. Show your calculations clearly. (b) Also state any three factors that favour the issue of debentures by the company as part of its capital structure. (CBSE, OD 2016)

Answer rating: 100% (QA)

a To determine whether the shareholders gained or lost in respect of earning per share on diversific... View the full answer