1 The firm is considering two alternative financial plans:

(i) either to raise the entire funds by issuing 50,000 ordinary shares at Rs 10 per
share, or
(ii) to raise Rs 250,000 by issuing 25,000 ordinary shares at Rs 10 per share and
borrow Rs 250,000 at 15 per cent rate of interest. The tax rate is 50 per cent
The EBIT is 1,20,000 IN BOTH CASE. calculate EPS AND ROE

2 Empire Ltd needs Rs 10,00,000 to build a new factory which will yield EBIT of
1,50,000 per year. The company has to choose between two alternative financing plans.
75 percent equity and 25 percent debt and 50 percent equity and 50 percent debt. Under
the first plan the shares can be sold for Rs 50 per share and the interest rate on the debt
will be 14 percent. Under the second plan shares can be sold for Rs 40 per share and the
interest rate on debt will be 16 percent. Determine the EPS for each plan assuming a tax
rate of 35 percent. Also ROE and % increase or decrease

4 A company needs 5 lakh as capital. They have three alternatives

1) the company may issue 50,000 equity shares of 10 each
2) company may issue 25000 equity shares and rest 8% debenture
3) company may issue 25000 equity shares and 8 % preference shares for 5 lakh. Tax
rate 50%. Which plan u will choose ?
If the EBIT is 1,20,000 calculate ROE AND EPS
Also calculate the indifference point

5 Ordinary shares of 10 lakhs or ordinary shares of 5 lakhs and15% debenture of 5 lakhs.

Assume tax rate 50% price of each share is Rs10

6 Ordinary share capital 5 lakhs and 12% debenture 5 lakhs Vs ordinary share capital 7
 lakhs and 10% debenture 3lakhs. Assume tax rate 50% price of each share is Rs10
7 10 lakhs equity or 5 lakhs equity and 5 lakhs 13% preference sharesAssume tax rate
50% price of each share is Rs10

8 Ordinary share capital 10 lakhs or share capital 5 lakhs, 13%preference shares 2 lakhs,
15% debentures 3 lakhs Assume tax rate 50% price of each share is Rs10

9 Ordinary share 6 lakhs, 15% debenture 4 lakhs Vs

Ordinary share 4 lakhs,13% preference share 2 lakhs,15% debenture 4 lakhs

1 Ordinary share 4 lakhs , 10% preference share 3 lakhs , 12% debenture 3lakhs Vs
0 ordinary share 2 lakhs ,10% preference share 4 Lakh and 12% debenture 4 lakh tax
50% and share value Rs 10

1 Equity share of 5 lakhs value of each share 10, 12%preference shares of 5 lakh Vs
1 equity share of 3 lakh and 4 lakh 10% debenture and 3 lakh 12% pref. Tax 50%.