Answer to Question #34157 in Economics of Enterprise for M Muralidharan

Question #34157

4. The following information are available in respect of companies M and N
Company M Company N
` `
Equity share capital (`10 each) 20,00,000 10,00,000
14% Debentures 5,00,000 15,00,000
EBIT 5,00,000 5,00,000
Return on capital employed 20% 20%
Tax rate 40% 40%
From the above information, calculate:
a) Financial leverage
b) Rate of return on equity share capital
c) Earnings per share
Also state which company's shareholders are in a better position financially?

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