0 (c) Casual Callers
(d) Placement Agencies and management consultants
Read the following text and answer question no. 17-20 on the basis of the same:
"Smart Stationery Ltd.' wants to raise funds of 340,00,000 for its new project. The management is considering the following mix of
debt and equity to raise this amount:
Capital Structure
Alternative I)
Alternative II)
Alternative III)
Equity
40,00,000
30,00,000
10,00,000
Debt
10,00,000
30,00,000
Other details are as follows:
Interest Rate on Debt
9%
Face Value of Equity Shares
100 each
Tax Rate
30%
Earning Before Interest and Tax (EBIT)
38,00,000
Q.17 Under which alternative the company will be called an unlevered firm?
(1)
Cay Alternative I
(b) Alternative II (c) Alternative III (d) None of these
Q.18 The Earning Per Share (EPS) under alternative I will be:
(1)
(a) 14.
(b) 16.57
(c) 337.10
(d) None of these
Q.19 Under which of the three alternatives will the company be able to take advantage of Trading on Equity?
(1)
(a) Alternative! (b) Alternative II (c) Alternative III (d) None of these
9.20
2.20 Does Earning Per Share always rise with increase in debt? Give reason
(1)
(a) Yes. Earning Per Share (EPS) always rises with increase in debt. When cost of debt is greater than ROI, use of more
debt increases the EPS.
(b) No Earning Per Share (EPS) does not always rise with increase in debt. When cost of debt is less than ROI, use of
more debt libcreases the EPS.
((c)) Yes, Earning Per Share (EPS) always rises with increase in debt. When cost of debt is less than ROI, use of more debt
increases the EPS.
(d) No, Earning Per Share (EPS) does not always rise with increase in debt. When cost of debt is greater than ROI, use of
more debt decreases the EPS.

​