(i) The present EBIT is Rs. 12 lakhs (ii) Interest on present borrowing Rs. Term Loans-12% of Rs. 40 lakhs = 4.80 lakhs Public Deposit- 12% of Rs. 15 = 1.80 lakhs Bank Loan- 15% of Rs. 35 = 5.25 lakhs Total 11.85 lakhs EBIT (iii) Present Interest Coverage Ratio Interest 12.00 11.85 = 1.01 Times. (iv) Revised EBIT= 12 % 120 100 = Rs. 14.40 lakhs (v) Revised amount of interest= Rs. 11.85 lakhs x 15% of 25 lakhs = Rs. 11.85 + Rs. 3.75 lakhs = Rs. 15.6 lakhs EBIT (vi) Revised Interest Coverage Ratio Interest 14.40 15.60 = 0.92. Illustration 5: Mangalore Chemicals Ltd. requires Rs. 25 lakhs for a new plant. This plant is expected to yield earnings before interest and taxes of Rs. 5 lakhs. While deciding about the financial plan, the 16 company considers the objective of maximising earnings per share. It has three alternatives to finance the project by raising debt of Rs. 2,50,000 or Rs. 10,00,000 or Rs. 1,50,000 and the balance in each case, by issuing equity shares. The company's share is currently selling at Rs. 150 but it is expected to decline to Rs. 125 in case the funds are borrowed in excess of Rs. 10,00,000. The funds can be borrowed at the rate of 10% up to Rs. 2,50,000 at 15% over Rs. 2,50,000 and up to Rs. 1,00,000 and at 18% over Rs. 10,00,000. The tax rate applicable to the company is 30%. Which form of financing should the company chose