ure | 3 wn piviaens holders 7 wt at 20 ; ity Share 30} gr pero FY : | 40,000 1500 v ve py Sha 400,000 + 40, . oe aon ers) a 420,000 + 40,000] 300,060 « 15600 ail Fa, As the, £00 ie debentures of €100 each, It will double the earings of the Ln ents e 254 Com guld issu ; control over the company enould 1501 cs of any pany nV ere gers Company has equity share capital of 5, és so BJA Ltd. Co! ee ye fs "y are capital of %5,00,000 divided into shares of Aches to raise further = 3,09! expansion cum modernisation plans. The company : i npany ree Howin’ financing schemes mon stock ) All eh jncommon stock and @ two lakhs in debt @ 10% p.a. ) Tone Bail debts at 10% P eine Lin ' : Zone lakh in common stock and @ two lakh in preference capital with the rate of dividend ( ¥, at 8%. ; before interest and tax (EBIT) are 21, 50,000. The ci any’s expected earnings , 50,000. The corporate rate Tre om PT ine the Earnings per share (EPS) in each plan and comment on the implications x is 50”. seondal leverage PlanT Plan I Plant! | Plan IV z © e td “rungs before interest and tax 150,000 | 1,50,000 1,50,000 150,000 | tps Interest = 20,000 30,000 af | 150,000 Ya0900 | 120000 [130000 | ps TH 050% 75,000 65,000 | 60.000 | 75000 | tamings ater tax 75,000 000 | 60,000 | 75,000 lm Preference dividend @ 8% = || . - | 16000 | famings available for common stockholders 75,000 5000 | 60000 | 59,000 No of common shares 8,000 6,000 5,000 | 6,000 Exmings per share 79375 71083 ziz_|_ 2983 Comments In the four plans of fresh financing, Plan Ill is the most leveraged of all. In this «ase, additional feancng is done by raising loans @ 10% interest. Plan II has fresh capital stock of % One lakh while Two Lhe ane saleed fron’ loane, Plan IV does not have fresh loans but preference capital has been ised for & two lakhs. gi amines per share is highest in Plan II ic. 12. This plan depends upon fixed cost funds ee has bendfited the comeon stock-holders by increasing their share in profits. Plan I's the att scheme where EPS is 710.83. In this case too @ lakhs are raised through fixed cost funds 23, fers IV, where preference capital of @2 lakhs is issued, is better than plan 1 where common stock is raised. The oa ae +, analysis of this information shows that financial leverage has helped in improving earnings