Calculate earnings on equity shares for modi vanaspathi ltd

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Modi vanaspathi Ltd. Is capitalised with Rs.10,00,000 divided into 1,00,000 equity shares of Rs.10 each. The management wishes to raise another Rs.10,00,000 for the financing of a major expansion programme. The management may finance with (i)all equity shares,(ii) Rs.5,00,000 by equity shares and Rs.5,00,000 by 5% debentures, (iii) all by 6% debentures. The company's existing earnings before interest and taxes amounted to Rs.1,20,000. Its is expected that the company will maintain its same rate of return after the expansion programme. Tax rate is assumed to be 50%.

Problem 1: Calculate earnings on equity shares under the above proposal (i), (ii) and (iii).

Reference no: EM132778580

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