Read the following passage and answer the following questions.
A finance manager in an outlet raised ₹3.5 crore through a mix of debt and equity in a ratio of 4 : 3 to open a new outlet, but the actual amount required was ₹3 crore. The aim of the finance manager is to maximize the shareholder's wealth. Keeping this in mind, he reinvested the excess amount of ₹50 lakh in a fixed deposit carrying 6% interest p.a. while the cost of capital is 10% p.a.
Finance manager raised ______ through owner's fund and ______ through borrowed fund.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → ₹1,50,00,000, ₹2,00,00,000.
The finance manager raised ₹3.5 crore through a mix of debt and equity in a ratio of 4:3.
Debt amount = (4/7) × ₹3.5 crore = ₹2 crore (₹2,00,00,000)
Equity amount = (3/7) × ₹3.5 crore = ₹1.5 crore (₹1,50,00,000)
Therefore, the finance manager raised:
- ₹2,00,00,000 through borrowed funds (debt) and
- ₹1,50,00,000 through owner's funds (equity).