Rise Ltd., a listed company having registered office in Delhi, has proposed two financial plans. Details of the same are given below: Sources of funds Plan - 1 Plan - 2 Equity shares of ₹100 each ₹22,50,000 ₹45,00,000 12

CS Professional · Capital Commodity and Money Market · PYQS · December 2016
Rise Ltd., a listed company having registered office in Delhi, has proposed two financial plans. Details of the same are given below: Sources of funds Plan - 1 Plan - 2 Equity shares of ₹100 each ₹22,50,000 ₹45,00,000 12% Preference shares of ₹100 each ₹50,00,000 Nil Debentures (convertible after 2 years) ₹10,00,000 ₹30,00,000 @10% interest @11% interest Tax rate 35% 35% You are required to compute the financial break-even point for each plan.

Answer & Explanation:

Financial Break-even point of each plan Plan 1: Interest on Debentures + (Preference Dividend / (1 - Tax Rate)) ₹1,00,000 + (₹6,00,000 / (1 - 0.35)) = ₹1,00,000 + ₹9,23,077 = ₹10,23,077 Plan 2: Interest on Debentures + (Preference Dividend / (1 - Tax Rate)) ₹3,30,000 + (₹0 / (1 - 0.35)) = ₹3,30,000

Topics: Financial Management

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