We have outstanding 100000 equity of 10 each. For expansion of business we nee

We have outstanding 100000 equity of 10 each. For expansion
of business we need Rs.500000. which of the following option
will be beneficial for equity shareholders ? If net profit
before interest & tax is 300000 &tax rate is 40%.(1)-50000
equity sh of Rs 10 each,(2)-10% Pref Sh.. Rs 100 each,(3)-
5000 10% debentures.??????????

Question Posted / shahid raza,pgdm,lbs,g.noida

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We have outstanding 100000 equity of 10 each. For expansion of business we need Rs.500000. which o..

Answer / shahid raza,pgdm,lbs,g.noida

It will be beneficial to issue 5000 10% debentures.

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6 Yes

1 No

We have outstanding 100000 equity of 10 each. For expansion of business we need Rs.500000. which o..

Answer / farha

the option which is benificial for equity shareholder is
issuing 5000 10% debentures because the interest on
debentures is tax free so PBIT amount becomes less for tax
on one hand.
on the other hand the number of equity shareholder not
increased remain contant 10000 eqity holders so the earning
per equity share will be maximum

Is This Answer Correct ?

3 Yes

0 No

We have outstanding 100000 equity of 10 each. For expansion of business we need Rs.500000. which o..

Answer / jagdish

(2)
Profit-300000
less-inter-2000
EBIT-280000
LESS-112000
PAT-168000

(1)PROFIT-300000
TAX-120000
PAT-180000

Is This Answer Correct ?

3 Yes

1 No

We have outstanding 100000 equity of 10 each. For expansion of business we need Rs.500000. which o..

Answer / mamatha

5000 10percent debenture is benificial