Q28. Mech. Toys wants to raise funds of 40,00000 for its new project. The management is considering the
following mix of debt and equity to raise this amount:
Capital Structure Alternatives
I
Equity
40,00,000
Debt
0
Additional information is as follows:
II
30,00,000
10,00000
10,00,000
30,00,000
Interest rate on d. bt!
Face value of Equity share < 100 each
Tax Rate: 30%
Earnings Before Interest and Tax: 38,00,000
a. Under which of the three alternatives will the company be able
to take advantage of Trading on
Equity?
b. Does Earning per Share always rise with increase in debt?
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