Bharti Electronics manufactures select electronic items. In order to finance its operations, it employs both equity capital and debt. The operational position and how it is financed is clear from the...

Bharti Electronics manufactures select electronic items. In order to finance its operations, it employs both equity capital and debt. The operational position and how it is financed is clear from the latest financial statements given as follows:

The firm plans to diversify operations that will require funds amounting to Rs 1000 million. After the expansion is complete, additional revenue is expected to be Rs 2000 million annually. The variable cost of the new project will be at the same rate as the existing one. The fixed cost will be Rs 600 million. In order to finance the expansion, the firm is to make a public issue of equity shares at Rs 105 per share. The floatation cost is expected to be Rs 5. Alternatively, it may raise funds from the issue of debentures at an interest rate of 8%.

1. Do the two ways of raising funds to finance the new project impact the leverage ratio?

2. Calculate the EPS under the two ways of financing.