Emerald Ltd is planning an expansion programme which will require Rs.30 crores and can
be funded through one of the following options:
i. Issue further equity share of Rs.100 each at par
ii. Raise loans at 15% interest
iii. Issue preference shares at 12%
Present paid up capital is Rs.60 crores and average annual EBIT is Rs.12 crores. Assume IT
rate at 50%. After the expansion EBIT is expected to be Rs.15 crores per annum. Calculate
EPS under the three financing options indicating the alternative giving the highest return to
the equity shareholders.
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