A new company needs Rs 5,00,000 for construction of a new plant. The following 3 financial plans seem feasible.
Plan 1: The company may issue 5000 ordinary shares @ Rs 10 / share
Plan 2: The company may issue 25000 ordinary shares @ Rs 10/share and 2500 debentures of Rs 100 @ 8% interest
Plan 3: The company may issue 25000 ordinary shares @ Rs 10 / share and 2500 preference shares of Rs 100 bearing 8% dividend.
If the company’s EBIT is expected to be Rs 1,00,000, what would the EPS be under the 3 plans? Which alternative would you recommend and why? Assume 50% tax rate.

Answer rating: 100% (QA)

EPS Earnings Per Share under the 3 Plans Plan 1 Only Equity Shares No interest or dividend payments ... View the full answer