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Hi sir
Q;Which of the following would occur following loan notes issue??1)Earning/share would Fall
2)The cost of equity would Rise
3)Tax shield would RiseI think All statements are correct but actually its not
1 is wrong by giving Reason Earning/share would rise as the increase in operating profit exceeds the increase in interest expensePoint is when we issue loan notes the earning attribute to shareholders needs to be fall because of increase interest expense..then why statement 1 is wrong..
Sorry sorry sorry…
there is written somewhere above the Question that O.P increased by double then the interest..i mean due to O.P double the Earning is increase..
Now i got the point thanks allot..
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