Capital Structure and Financing Decisions Quiz

What is the formula to calculate Earnings Per Share (EPS)?

EPS = (Earnings After Tax - Preference Dividends) / No. of Equity Shares

In the given scenario, how much is the total equity share capital of GD Ltd?

Rs. 5,00,000

What is the tax rate used in the calculation of EPS?

50%

Which financial scheme resulted in the highest EPS?

Plan C Signup and view all the answers

What is the effect of including preference shares on the EPS in Plan D?

Reduces EPS Signup and view all the answers

What is the significance of EBIT in the calculation of EPS?

Higher EBIT leads to higher EPS Signup and view all the answers

How is the Price Earnings ratio calculated?

Price Earnings ratio * EPS Signup and view all the answers

What is the formula for calculating EPS?

EPS = (Earnings After Tax - Preference Dividend) / Number of Equity Shares Signup and view all the answers

What are the three financing alternatives available for the company's expansion program?

a) Issue of 10,000 equity shares at a premium of Rs. 25 per share b) Issue of 10,000 10% preference shares c) Issue of 10,000, 8% Debentures Signup and view all the answers

How does the company's capital structure break down based on the given information?

Equity shares: Rs. 10,00,000, Retained Earnings: Rs. 5,00,000, 9% Preference Shares: Rs. 6,00,000, 7% Debentures: Rs. 4,00,000 Signup and view all the answers

What is the impact of tax rate on the company's earnings?

Tax rate is 50%, reducing the earnings after tax available to shareholders. Signup and view all the answers

How does the company's earnings before interest and tax (EBIT) affect the financing decision?

Higher EBIT provides more flexibility in choosing financing alternatives. Signup and view all the answers

Calculate the EPS when the entire capital is raised through equity shares of Rs. 100 each.

9.00 Signup and view all the answers

Calculate the EPS when 50% is raised from equity shares and 50% is raised through 10% debentures.

12.00 Signup and view all the answers

Calculate the EPS when 50% is raised through 10% debentures, 20% through 9% preference shares, and the balance through equity shares.

14.00 Signup and view all the answers

Why is Case-C preferred based on EPS?

Case-C is preferred based on EPS because it has the highest EPS value of 14.00. Signup and view all the answers

If 12.A Ltd. company has a share capital of 1,00,000 divided into shares of Rs.10 each, and requires an additional investment of Rs. 50,000, how might it finance this expansion?

12.A Ltd. company might finance the expansion through a mix of equity shares, debentures, or preference shares. Signup and view all the answers

How does the tax rate of 40% impact the Earnings after tax (EAT) and subsequently the EPS?

The tax rate of 40% reduces the Earnings after tax (EAT), which in turn affects the Earnings Available to Equity shareholders (EAESH) and the EPS. Signup and view all the answers