Equity share of Rs. 100 each
Rs. 3, 20, 00,000
7% preference shares of Rs. 100 each Rs. 2,00,00,000
6% debentures of Rs. 100 each
Rs. 2, 00, 00,000
Reserves
Rs. 80, 00,000
The rate of return on capital is 10%. The company needs Rs. 2,00,00,000 for expansion programme.
The rate of corporation tax is 50%. There are three alternatives available to the company to finance its
expansion.
(a) Issue of 160,000 equity shares of Rs. 100 each at a premium of Rs. 25
(b) Issue of 8% preference shares
(c) Issue of 7% debentures. Which alternative is best and why?
CAclubindia
