Between two alternative financing plans

Reference no: EM131108213

Empire Ltd needs Rs 1,000,000 to build a new factory which will yield EBIT of Rs 150,000 per year. The company has to choose between two alternative financing plans: 75 per cent equity and 25 per cent debt or 50 per cent equity and 50 per cent debt. Under the first plan shares can be sold at Rs 50 per share, and the interest rate on debt will be 14 per cent. Under the second plan shares can be sold for Rs 40 per share and the interest rate on debt will be 16 per cent. Determine the EPS for each plan assuming a 35 per cent tax rate.

Reference no: EM131108213

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