Question

. A company has assets of Rs.10,00,000 financed wholly by equity

share capital. There are 100000 shares outstanding with a book

value of Rs.10 per share. Last year’s profit before taxes was

Rs.250000. the tax rate is 35 per cent. The company is thinking

of an expansion programme that will cost Rs.500000. The

financial manager considers the three financing plans:




I. Selling 50000 shares at Rs.10 each.

II. Borrowing Rs.500000 through debentures at an interest

rate of 14 per cent.

III. Selling Rs.500000 of preference shares with a dividend rate

of 14 per cent.

The profit before interest and tax are estimated to be

Rs.375000 after expansion.

You are required to calculate:



a. The after-tax rate of return on assets,

b. The earnings per share

c. The rate of return on shareholders’ equity for each of the three

financing alternatives.

d. Suggest which alternative should be accepted by the firm. ​

Answer 1

Answer:

The correct answer is The rate of return on share holders equity for each of the three financing alternatives

Explanation:

Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders' equity. Because shareholders' equity is equal to a company’s assets minus its debt, ROE is considered the return on net assets. ROE is considered a measure of how effectively management is using a company’s assets to create profits.

Hope this answer will help you

mark as brainliest