CASE STUDY ON LONG TERM SOURCES XYZ Pvt Ltd Company is established in 1998 with Authorized Capital of 10,00,000

Equity shares having Face Value of Rs.100/- each and 5,00,000 Cumulative Participative Preference Shares having Face Value of Rs.100/- each. At the time of promoting the company one of the Promoter Mr. ABC, his wife contributed to share capital. Mr. ABC also collected amount of Share Capital from other parties the details of which are as underSR.NO. 1 2 3 4 NAME Mr. ABC Mrs. ABC Mr. P Mr. Q No of Shares Held 60,000 20,000 10,000 10,000 Amount Rs. 60,00,000/20,00,000/10,00,000/10,00,000/-

Mr. ABC is controlling and directing the Company at present. Company obtained loan from a bank of 150.00 lacs @10% interest per annum. The present outstanding balance of it is Rs.60.00 lacs. Company is expanding its manufacturing facilities by setting up new plant in Gujarat. The cost of expansion is estimated Rs.500.00 lacs. Company is contributing through its reserves amounting to Rs.150.00 lacs. Company is planning to raise balance Rs.350.00 lacs by one of the following optionsA) Issue 280000 equity shares @ Rs. 125 each. Company can sell them through private placement in which existing promoters and others can also participate.

B) Issue 350000 Cumulative Participative Preference Shares of Rs. 100/- each. Dividend Rate 10% P.A. These shareholders can participate in dividend if dividend is paid to equity shareholders more than 11%. Page 1 of 2

C) Raise Term Loan from a Bank of Rs.350.00 lacs for a period 10 years with floating interest rates which is at present 12% P.A. OTHER POINTS TO CONSIDER1. Company is taking adequate steps for regulatory compliance. 2. The Promoters investment in this new project is limited to Rs.50.00 lacs. 3. The expected equity dividend rate to be declared Year I- 9%, Year II-9.50%, Year III-10.50%, Year IV-11%, Year V onwards 12% or more. 4. The income tax rate applicable to company is 30% on taxable profit. 5. Mr. P & Mr . Q can jointly invest Rs.200.00 lacs for expansion project. You are required to1) Evaluate all the options with appropriate reasons, taking into consideration other points provided. 2) Suggest the best option to the company with reasons.

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