CBSE Class 12 Business Studies 2019 Outside Delhi set 1

'Smart Stationery Ltd.', wants to raise funds of ₹ 40,00,000 for its new project. The management is considering the following mix of debt and equity to raise this amount:

CapitalStructure	Alternative
CapitalStructure	I(₹)	II(₹)	III(₹)
Equity	40,00,000	30,00,000	10,00,000
Debt	0	10,00,000	30,00,000

Other details are as follows:

Interest‌Rate‌on‌Debt	9%
Face‌value‌of‌Equity‌Shares	₹100‌each
Tax‌Rate	30%
Earning‌before‌Interest‌and‌Tax(EBIT)	₹8,00,000

Question : 30

Total: 44

Does Earning Per Share always rise with increase in debt?

Solution:

No, EPS does not always rise with increase in debt.

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