Question: ABC Ltd. is considering two financing plans to raise 8, 00,000. The key information is as follows: TABLE GIVEN BELOW: Plan Equity Debt Preference

ABC Ltd. is considering two financing plans to raise ₹ 8, 00,000. The key information is as follows:

TABLE GIVEN BELOW:

Plan Equity Debt Preference Shares 150% 50% 250% 50% Expected EBIT is ₹ 2, 40,000. Cost of Debt is 10% and cost of Preference Shares is 10%. Tax rate is 50%. Equity shares of the face value of ₹ 10 each will be issued at a premium of ₹ 10 per share.

Calculate Earnings per share for plan 1 and 2 and suggest which one is better.

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