What should be choice of company given applicable tax rate

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Question 1: A company requires capital funds of Rs. 5 crores and has two options: (i) To raise the amount by the issue of 15% debentures, and (ii) To issue equity shares at a rate of Rs. 20 per share. It already has 40 lacs equity shares issued and debt financing of Rs. 6 crores at the rate of 12%. Find out the expected EPS under both financing options at the given EBIT levels of Rs. 2 crores and Rs. 7.5 crores. What should be choice of the company given that the applicable tax rate is 50%?

Reference no: EM132536486

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