Bidii Ltd expects a return on investment (ROI) of 24 % on proposed investment projects whose total cost is 5,000,000. In order to finance these...

      

Bidii Ltd expects a return on investment (ROI) of 24 % on proposed investment projects whose total cost is 5,000,000. In order to finance these investment projects the company is considering two options.
Option one
Issue 500,000 ordinary shares at a par value of sh. 10 each.
Option two
Issue 250,000 ordinary shares at a par value of sh. 10 each and obtain the balance through a bank loan at an interest rate of 15% per annum.
The rate of corporation tax is 30%

Required:
Determine the effect of the two financing options on the earnings available to shareholders and hence advise the company on the best financing option.

  

Answers


Kavungya
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Kavungya answered the question on March 30, 2022 at 08:30


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