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Compute effect of the two financing option on the earning

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Reference no: EM132532642

Belfast Ltd expects a return on investment (ROI) of 24% on proposed investment projects whose total cost is sh. 5000,000. In order to finance these investment projects, the company is considering two options.

Option one:

Issue 500,000 ordinary shares at a par value of sh. 10 each

Option two:

Issue 250,000 ordinary shares at a par value of sh. 10 each and obtain the balance through a bank loan at an interest rate of 15% per annum.

The rate of corporation tax is 30%.

Required:

Question 1: Determine the effect of the two financing options on the earnings per share and hence advise the company on the best financing option.

Reference no: EM132532642

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