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.??????????
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Answer Posted / 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
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