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Please help me with this financial management question guys!!

M/s Nagu Ltd., has a share capital of $ 1,00,000 divided into 10,000 equity sharp-s of $ 10 each fully paid. It has a major expansion programme requiring an investment of another 50,000. The management is considering the following alternatives for raising this amount.

(a) Issue of 5,000 Equity shares of $ 10 each

(b) Issue of 5,000 12% Preference shares of $ 10 each

(c) Issue of 10% Debentures of $ 50,000

The companyâ€TMs present earnings before interest and taxes (EBIT) are $ 40,000 p.a. You are required to calculate the effect of each of the above modes of financing of the EPS (Earnings Per Share) assuming (1) EBIT continues to be the same even after expansion. (ii) EBIT increases by $ 10,000. Assume tax rate at 50%.?
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Please help me with this financial management question guys!!M/s Nagu ...
Effect of Different Modes of Financing on EPS

Introduction:
M/s Nagu Ltd. is planning to raise $50,000 for its expansion programme. The company has three options for financing - issuing equity shares, preference shares, or debentures. The effect of each mode of financing on the EPS needs to be calculated assuming two scenarios - EBIT remains the same or increases by $10,000, with a tax rate of 50%.

Option 1: Issue of Equity Shares
- Equity shares of $10 each fully paid can be issued.
- 5,000 equity shares can be issued to raise $50,000.
- The total number of equity shares will increase to 15,000.
- Earnings available to equity shareholders will be reduced due to the increase in the number of shares.
- EPS will decrease from $4 to $3.33 if EBIT remains the same.
- EPS will increase from $4 to $4.44 if EBIT increases by $10,000.

Option 2: Issue of Preference Shares
- 5,000 12% preference shares of $10 each can be issued to raise $50,000.
- Preference shareholders have a fixed dividend of 12% before any dividend is paid to equity shareholders.
- EPS will decrease from $4 to $3.20 if EBIT remains the same.
- EPS will increase from $4 to $4.20 if EBIT increases by $10,000.

Option 3: Issue of Debentures
- 10% debentures of $50,000 can be issued.
- Debentureholders have a fixed interest payment of 10% before any dividend is paid to equity shareholders.
- EPS will decrease from $4 to $3.11 if EBIT remains the same.
- EPS will increase from $4 to $4.11 if EBIT increases by $10,000.

Conclusion:
The EPS decreases in all three options of financing due to the increase in the number of shareholders or the fixed payment to preference shareholders and debentureholders. The EPS increases when EBIT increases by $10,000, but the increase is lesser in the case of preference shares and debentures compared to equity shares. The company needs to carefully evaluate the pros and cons of each mode of financing before making a decision.
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Direction: Read the following passage carefully and answer the question given below it.India embarked on a gradual shift towards capital account convertibility with the launch of the reforms in the early 1990s. Although foreign natural persons except NRIs are prohibited from investing in financial assets, such investments were permitted through Foreign Institutional Investor (FIIs) and Overseas Corporate Bodies (OCBs) with suitable restrictions. Ever since September 14, 1992, when FIIs were first allowed to invest in all the securities traded on the primary and secondary markets, including shares, debentures and warrants issued by companies which were listed or were to be listed on the Stock Exchanges in India and in the schemes floated by domestic mutual funds, the holding of a single FII and of all FIIs, Non-resident Indians (NRIs) and OCBs in any company were subject to the upper limit of 5 per cent and 24 per cent of the company's total issued capital, respectively. Furthermore, funds invested by FIIs had to have at least 50 participants with no one holding more than 5 per cent to ensure a broad base and preventing such investment acting as a camouflage for individual investment in the nature of Foreign Direct Investment (FDI) and requiring Government approval.Initially the idea of allowing FIIs was that they were broad-based, diversified funds, leaving out individual foreign investors and foreign companies. The only exceptions were the NRI and OCB portfolio investments through the secondary market, which were subject to individual ceilings of 5 per cent to prevent a possible "take over." OCB investments through the portfolio route have been banned since November, 2001.In February 2000, the FII regulations were amended to permit foreign corporate and high net worth individuals to also invest as sub-accounts of Securities and Exchange Board of India (SEBI)-registered FIIs. Foreign corporate and high net worth individuals fall outside the category of diversified investors. FIIs were also permitted to seek SEBI registration in respect of sub-accounts for their clients under the regulations. A Working Group for Streamlining of the Procedures relating to FIIs constituted in April, 2003 by the Government, inter alia, recommended streamlining of SEBI registration procedure, and suggested that dual approval process of SEBI and RBI be changed to a single approval process of SEBI. This recommendation has been implemented.Like in other countries, the restrictions on FII investment have been progressively liberalized. From November 1996, any registered FII willing to make 100 per cent investment in debt securities were permitted to do so subject to specific approval from SEBI as a separate category of FIIs or sub-accounts as 100 per cent debt funds. Moreover, investments were allowed only in debt securities of companies listed or to be listed in stock exchanges. Investments were free from maturity limitations.How, according to the passage, did the foreign companies manage to invest directly into the Indian share market?

Direction: Read the following passage carefully and answer the question given below it.India embarked on a gradual shift towards capital account convertibility with the launch of the reforms in the early 1990s. Although foreign natural persons except NRIs are prohibited from investing in financial assets, such investments were permitted through Foreign Institutional Investor (FIIs) and Overseas Corporate Bodies (OCBs) with suitable restrictions. Ever since September 14, 1992, when FIIs were first allowed to invest in all the securities traded on the primary and secondary markets, including shares, debentures and warrants issued by companies which were listed or were to be listed on the Stock Exchanges in India and in the schemes floated by domestic mutual funds, the holding of a single FII and of all FIIs, Non-resident Indians (NRIs) and OCBs in any company were subject to the upper limit of 5 per cent and 24 per cent of the company's total issued capital, respectively. Furthermore, funds invested by FIIs had to have at least 50 participants with no one holding more than 5 per cent to ensure a broad base and preventing such investment acting as a camouflage for individual investment in the nature of Foreign Direct Investment (FDI) and requiring Government approval.Initially the idea of allowing FIIs was that they were broad-based, diversified funds, leaving out individual foreign investors and foreign companies. The only exceptions were the NRI and OCB portfolio investments through the secondary market, which were subject to individual ceilings of 5 per cent to prevent a possible "take over." OCB investments through the portfolio route have been banned since November, 2001.In February 2000, the FII regulations were amended to permit foreign corporate and high net worth individuals to also invest as sub-accounts of Securities and Exchange Board of India (SEBI)-registered FIIs. Foreign corporate and high net worth individuals fall outside the category of diversified investors. FIIs were also permitted to seek SEBI registration in respect of sub-accounts for their clients under the regulations. A Working Group for Streamlining of the Procedures relating to FIIs constituted in April, 2003 by the Government, inter alia, recommended streamlining of SEBI registration procedure, and suggested that dual approval process of SEBI and RBI be changed to a single approval process of SEBI. This recommendation has been implemented.Like in other countries, the restrictions on FII investment have been progressively liberalized. From November 1996, any registered FII willing to make 100 per cent investment in debt securities were permitted to do so subject to specific approval from SEBI as a separate category of FIIs or sub-accounts as 100 per cent debt funds. Moreover, investments were allowed only in debt securities of companies listed or to be listed in stock exchanges. Investments were free from maturity limitations.How was a foreign natural person, except NRI, allowed to enter in Indian equity market?

Direction: Read the following passage carefully and answer the question given below it.India embarked on a gradual shift towards capital account convertibility with the launch of the reforms in the early 1990s. Although foreign natural persons except NRIs are prohibited from investing in financial assets, such investments were permitted through Foreign Institutional Investor (FIIs) and Overseas Corporate Bodies (OCBs) with suitable restrictions. Ever since September 14, 1992, when FIIs were first allowed to invest in all the securities traded on the primary and secondary markets, including shares, debentures and warrants issued by companies which were listed or were to be listed on the Stock Exchanges in India and in the schemes floated by domestic mutual funds, the holding of a single FII and of all FIIs, Non-resident Indians (NRIs) and OCBs in any company were subject to the upper limit of 5 per cent and 24 per cent of the company's total issued capital, respectively. Furthermore, funds invested by FIIs had to have at least 50 participants with no one holding more than 5 per cent to ensure a broad base and preventing such investment acting as a camouflage for individual investment in the nature of Foreign Direct Investment (FDI) and requiring Government approval.Initially the idea of allowing FIIs was that they were broad-based, diversified funds, leaving out individual foreign investors and foreign companies. The only exceptions were the NRI and OCB portfolio investments through the secondary market, which were subject to individual ceilings of 5 per cent to prevent a possible "take over." OCB investments through the portfolio route have been banned since November, 2001.In February 2000, the FII regulations were amended to permit foreign corporate and high net worth individuals to also invest as sub-accounts of Securities and Exchange Board of India (SEBI)-registered FIIs. Foreign corporate and high net worth individuals fall outside the category of diversified investors. FIIs were also permitted to seek SEBI registration in respect of sub-accounts for their clients under the regulations. A Working Group for Streamlining of the Procedures relating to FIIs constituted in April, 2003 by the Government, inter alia, recommended streamlining of SEBI registration procedure, and suggested that dual approval process of SEBI and RBI be changed to a single approval process of SEBI. This recommendation has been implemented.Like in other countries, the restrictions on FII investment have been progressively liberalized. From November 1996, any registered FII willing to make 100 per cent investment in debt securities were permitted to do so subject to specific approval from SEBI as a separate category of FIIs or sub-accounts as 100 per cent debt funds. Moreover, investments were allowed only in debt securities of companies listed or to be listed in stock exchanges. Investments were free from maturity limitations.How was a foreign natural person, except NRI, allowed to enter in Indian equity market?

Direction: Read the following passage carefully and answer the question given below it.India embarked on a gradual shift towards capital account convertibility with the launch of the reforms in the early 1990s. Although foreign natural persons except NRIs are prohibited from investing in financial assets, such investments were permitted through Foreign Institutional Investor (FIIs) and Overseas Corporate Bodies (OCBs) with suitable restrictions. Ever since September 14, 1992, when FIIs were first allowed to invest in all the securities traded on the primary and secondary markets, including shares, debentures and warrants issued by companies which were listed or were to be listed on the Stock Exchanges in India and in the schemes floated by domestic mutual funds, the holding of a single FII and of all FIIs, Non-resident Indians (NRIs) and OCBs in any company were subject to the upper limit of 5 per cent and 24 per cent of the company's total issued capital, respectively. Furthermore, funds invested by FIIs had to have at least 50 participants with no one holding more than 5 per cent to ensure a broad base and preventing such investment acting as a camouflage for individual investment in the nature of Foreign Direct Investment (FDI) and requiring Government approval.Initially the idea of allowing FIIs was that they were broad-based, diversified funds, leaving out individual foreign investors and foreign companies. The only exceptions were the NRI and OCB portfolio investments through the secondary market, which were subject to individual ceilings of 5 per cent to prevent a possible "take over." OCB investments through the portfolio route have been banned since November, 2001.In February 2000, the FII regulations were amended to permit foreign corporate and high net worth individuals to also invest as sub-accounts of Securities and Exchange Board of India (SEBI)-registered FIIs. Foreign corporate and high net worth individuals fall outside the category of diversified investors. FIIs were also permitted to seek SEBI registration in respect of sub-accounts for their clients under the regulations. A Working Group for Streamlining of the Procedures relating to FIIs constituted in April, 2003 by the Government, inter alia, recommended streamlining of SEBI registration procedure, and suggested that dual approval process of SEBI and RBI be changed to a single approval process of SEBI. This recommendation has been implemented.Like in other countries, the restrictions on FII investment have been progressively liberalized. From November 1996, any registered FII willing to make 100 per cent investment in debt securities were permitted to do so subject to specific approval from SEBI as a separate category of FIIs or sub-accounts as 100 per cent debt funds. Moreover, investments were allowed only in debt securities of companies listed or to be listed in stock exchanges. Investments were free from maturity limitations.Which of the following best introduces the above passage?

Direction: Read the following passage carefully and answer the question given below it.India embarked on a gradual shift towards capital account convertibility with the launch of the reforms in the early 1990s. Although foreign natural persons except NRIs are prohibited from investing in financial assets, such investments were permitted through Foreign Institutional Investor (FIIs) and Overseas Corporate Bodies (OCBs) with suitable restrictions. Ever since September 14, 1992, when FIIs were first allowed to invest in all the securities traded on the primary and secondary markets, including shares, debentures and warrants issued by companies which were listed or were to be listed on the Stock Exchanges in India and in the schemes floated by domestic mutual funds, the holding of a single FII and of all FIIs, Non-resident Indians (NRIs) and OCBs in any company were subject to the upper limit of 5 per cent and 24 per cent of the company's total issued capital, respectively. Furthermore, funds invested by FIIs had to have at least 50 participants with no one holding more than 5 per cent to ensure a broad base and preventing such investment acting as a camouflage for individual investment in the nature of Foreign Direct Investment (FDI) and requiring Government approval.Initially the idea of allowing FIIs was that they were broad-based, diversified funds, leaving out individual foreign investors and foreign companies. The only exceptions were the NRI and OCB portfolio investments through the secondary market, which were subject to individual ceilings of 5 per cent to prevent a possible "take over." OCB investments through the portfolio route have been banned since November, 2001.In February 2000, the FII regulations were amended to permit foreign corporate and high net worth individuals to also invest as sub-accounts of Securities and Exchange Board of India (SEBI)-registered FIIs. Foreign corporate and high net worth individuals fall outside the category of diversified investors. FIIs were also permitted to seek SEBI registration in respect of sub-accounts for their clients under the regulations. A Working Group for Streamlining of the Procedures relating to FIIs constituted in April, 2003 by the Government, inter alia, recommended streamlining of SEBI registration procedure, and suggested that dual approval process of SEBI and RBI be changed to a single approval process of SEBI. This recommendation has been implemented.Like in other countries, the restrictions on FII investment have been progressively liberalized. From November 1996, any registered FII willing to make 100 per cent investment in debt securities were permitted to do so subject to specific approval from SEBI as a separate category of FIIs or sub-accounts as 100 per cent debt funds. Moreover, investments were allowed only in debt securities of companies listed or to be listed in stock exchanges. Investments were free from maturity limitations.Which of the following best introduces the above passage?

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Please help me with this financial management question guys!!M/s Nagu Ltd., has a share capital of $ 1,00,000 divided into 10,000 equity sharp-s of $ 10 each fully paid. It has a major expansion programme requiring an investment of another 50,000. The management is considering the following alternatives for raising this amount. (a) Issue of 5,000 Equity shares of $ 10 each(b) Issue of 5,000 12% Preference shares of $ 10 each (c) Issue of 10% Debentures of $ 50,000The companyâ€TMs present earnings before interest and taxes (EBIT) are $ 40,000 p.a. You are required to calculate the effect of each of the above modes of financing of the EPS (Earnings Per Share) assuming (1) EBIT continues to be the same even after expansion. (ii) EBIT increases by $ 10,000. Assume tax rate at 50%.?
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Please help me with this financial management question guys!!M/s Nagu Ltd., has a share capital of $ 1,00,000 divided into 10,000 equity sharp-s of $ 10 each fully paid. It has a major expansion programme requiring an investment of another 50,000. The management is considering the following alternatives for raising this amount. (a) Issue of 5,000 Equity shares of $ 10 each(b) Issue of 5,000 12% Preference shares of $ 10 each (c) Issue of 10% Debentures of $ 50,000The companyâ€TMs present earnings before interest and taxes (EBIT) are $ 40,000 p.a. You are required to calculate the effect of each of the above modes of financing of the EPS (Earnings Per Share) assuming (1) EBIT continues to be the same even after expansion. (ii) EBIT increases by $ 10,000. Assume tax rate at 50%.? for CAT 2025 is part of CAT preparation. The Question and answers have been prepared according to the CAT exam syllabus. Information about Please help me with this financial management question guys!!M/s Nagu Ltd., has a share capital of $ 1,00,000 divided into 10,000 equity sharp-s of $ 10 each fully paid. It has a major expansion programme requiring an investment of another 50,000. The management is considering the following alternatives for raising this amount. (a) Issue of 5,000 Equity shares of $ 10 each(b) Issue of 5,000 12% Preference shares of $ 10 each (c) Issue of 10% Debentures of $ 50,000The companyâ€TMs present earnings before interest and taxes (EBIT) are $ 40,000 p.a. You are required to calculate the effect of each of the above modes of financing of the EPS (Earnings Per Share) assuming (1) EBIT continues to be the same even after expansion. (ii) EBIT increases by $ 10,000. Assume tax rate at 50%.? covers all topics & solutions for CAT 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Please help me with this financial management question guys!!M/s Nagu Ltd., has a share capital of $ 1,00,000 divided into 10,000 equity sharp-s of $ 10 each fully paid. It has a major expansion programme requiring an investment of another 50,000. The management is considering the following alternatives for raising this amount. (a) Issue of 5,000 Equity shares of $ 10 each(b) Issue of 5,000 12% Preference shares of $ 10 each (c) Issue of 10% Debentures of $ 50,000The companyâ€TMs present earnings before interest and taxes (EBIT) are $ 40,000 p.a. You are required to calculate the effect of each of the above modes of financing of the EPS (Earnings Per Share) assuming (1) EBIT continues to be the same even after expansion. (ii) EBIT increases by $ 10,000. Assume tax rate at 50%.?.
Solutions for Please help me with this financial management question guys!!M/s Nagu Ltd., has a share capital of $ 1,00,000 divided into 10,000 equity sharp-s of $ 10 each fully paid. It has a major expansion programme requiring an investment of another 50,000. The management is considering the following alternatives for raising this amount. (a) Issue of 5,000 Equity shares of $ 10 each(b) Issue of 5,000 12% Preference shares of $ 10 each (c) Issue of 10% Debentures of $ 50,000The companyâ€TMs present earnings before interest and taxes (EBIT) are $ 40,000 p.a. You are required to calculate the effect of each of the above modes of financing of the EPS (Earnings Per Share) assuming (1) EBIT continues to be the same even after expansion. (ii) EBIT increases by $ 10,000. Assume tax rate at 50%.? in English & in Hindi are available as part of our courses for CAT. Download more important topics, notes, lectures and mock test series for CAT Exam by signing up for free.
Here you can find the meaning of Please help me with this financial management question guys!!M/s Nagu Ltd., has a share capital of $ 1,00,000 divided into 10,000 equity sharp-s of $ 10 each fully paid. It has a major expansion programme requiring an investment of another 50,000. The management is considering the following alternatives for raising this amount. (a) Issue of 5,000 Equity shares of $ 10 each(b) Issue of 5,000 12% Preference shares of $ 10 each (c) Issue of 10% Debentures of $ 50,000The companyâ€TMs present earnings before interest and taxes (EBIT) are $ 40,000 p.a. You are required to calculate the effect of each of the above modes of financing of the EPS (Earnings Per Share) assuming (1) EBIT continues to be the same even after expansion. (ii) EBIT increases by $ 10,000. Assume tax rate at 50%.? defined & explained in the simplest way possible. Besides giving the explanation of Please help me with this financial management question guys!!M/s Nagu Ltd., has a share capital of $ 1,00,000 divided into 10,000 equity sharp-s of $ 10 each fully paid. It has a major expansion programme requiring an investment of another 50,000. The management is considering the following alternatives for raising this amount. (a) Issue of 5,000 Equity shares of $ 10 each(b) Issue of 5,000 12% Preference shares of $ 10 each (c) Issue of 10% Debentures of $ 50,000The companyâ€TMs present earnings before interest and taxes (EBIT) are $ 40,000 p.a. You are required to calculate the effect of each of the above modes of financing of the EPS (Earnings Per Share) assuming (1) EBIT continues to be the same even after expansion. (ii) EBIT increases by $ 10,000. Assume tax rate at 50%.?, a detailed solution for Please help me with this financial management question guys!!M/s Nagu Ltd., has a share capital of $ 1,00,000 divided into 10,000 equity sharp-s of $ 10 each fully paid. It has a major expansion programme requiring an investment of another 50,000. The management is considering the following alternatives for raising this amount. (a) Issue of 5,000 Equity shares of $ 10 each(b) Issue of 5,000 12% Preference shares of $ 10 each (c) Issue of 10% Debentures of $ 50,000The companyâ€TMs present earnings before interest and taxes (EBIT) are $ 40,000 p.a. You are required to calculate the effect of each of the above modes of financing of the EPS (Earnings Per Share) assuming (1) EBIT continues to be the same even after expansion. (ii) EBIT increases by $ 10,000. Assume tax rate at 50%.? has been provided alongside types of Please help me with this financial management question guys!!M/s Nagu Ltd., has a share capital of $ 1,00,000 divided into 10,000 equity sharp-s of $ 10 each fully paid. It has a major expansion programme requiring an investment of another 50,000. The management is considering the following alternatives for raising this amount. (a) Issue of 5,000 Equity shares of $ 10 each(b) Issue of 5,000 12% Preference shares of $ 10 each (c) Issue of 10% Debentures of $ 50,000The companyâ€TMs present earnings before interest and taxes (EBIT) are $ 40,000 p.a. You are required to calculate the effect of each of the above modes of financing of the EPS (Earnings Per Share) assuming (1) EBIT continues to be the same even after expansion. (ii) EBIT increases by $ 10,000. Assume tax rate at 50%.? theory, EduRev gives you an ample number of questions to practice Please help me with this financial management question guys!!M/s Nagu Ltd., has a share capital of $ 1,00,000 divided into 10,000 equity sharp-s of $ 10 each fully paid. It has a major expansion programme requiring an investment of another 50,000. The management is considering the following alternatives for raising this amount. (a) Issue of 5,000 Equity shares of $ 10 each(b) Issue of 5,000 12% Preference shares of $ 10 each (c) Issue of 10% Debentures of $ 50,000The companyâ€TMs present earnings before interest and taxes (EBIT) are $ 40,000 p.a. You are required to calculate the effect of each of the above modes of financing of the EPS (Earnings Per Share) assuming (1) EBIT continues to be the same even after expansion. (ii) EBIT increases by $ 10,000. Assume tax rate at 50%.? tests, examples and also practice CAT tests.
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