Business Studies > Business Finance > Financial Management
A company, 'SK Energy Ltd.' is providing solar energy solutions in some states of the country. Now it wants to expand its operations in some other states also. It needs ₹ 30,00,000 for its expansion. The Chief Financial Officer suggested two options for this.
Option I: To raise the entire funds through issue of shares of ₹ 10 each.
Option II: To raise ₹ 10,00,000 through issue of shares of ₹ 10 each and ₹ 20,00,000 by raising debt @ 10% p.a.
The return on investment of the firm is 12% and tax rate is 30%.
(i) Which of the two options will maximise shareholders' wealth? Give reason in support of your answer.
(ii) Will the earning per share improve if return on investment of the company is 8%? Give reason in support of your answer. Show your working clearly.
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