Suppose a firm has a capital structure exclusively comprising of ordinary shares amounting to 10,00,000. The firm
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Suppose a firm has a capital structure exclusively comprising of ordinary shares amounting to ₹10,00,000. The firm now wishes to raise additional ₹10,00,000 for expansion. The firm has four alternative financial plans:
(A) It can raise the entire amount in the form of equity capital.
(B) It can raise 50 per cent as equity capital and 50 per cent as 5% debentures.
(C) It can raise the entire amount as 6% debentures.
Further assume that the existing EBIT are ₹1,20,000, the tax rate is 35 per cent, outstanding ordinary shares 10,000 and the market price per share is ₹100 under all the four alternatives.
Which financing plan should the firm select and why?
Related Book For
Financial Accounting Tools for business decision making
ISBN: 978-0470534779
6th Edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso
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