Evergreen Company Ltd has been promoted by promoters. They are trying to decide how the company could be financed. There are three choices:
i. Issue Rs 500,000 in Equity shares
ii. Issue Rs 300,000 in equity shares, and Rs 200,000 in 12 % Debentures;
iii. Issue Rs 300,000 in equity shares and Rs 200,000 in 10% Preference shares.
Income before Interest and taxes is expected to be Rs 100,000 per year.
Required:
a. When the tax rate is 50 % compute the income available for equity shares, return on equity and EPS (assume equity shares are of Rs 100)
b. When the tax rate is 35 % compute the income available for equity shares, return on equity and EPS (assume equity shares are of Rs 100)