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EPS and book value; 500 shares, EBIT 40,000, tax 40%

Short answer

Project finance uses a project's own cash flows and assets for repayment, often via an SPV. EPS calculation: EBIT 40,000, less loan interest 3,600 = EBT 36,400; tax 14,560 => EAT 21,840; less preference dividend 4,500 => equity earnings 17,340; /500 shares = Rs 34.68. Book value = ordinary share capital/number of shares = 50,000/500 = Rs 100.00.

Describe project finance. The capital structure of a firm consists of 500 ordinary shares @ Rs 100/share and 300 preference shares @ Rs 100/share at 15% interest per year. The firm has a loan of 30,000 @ 12% per year. Firm's earning before interest and tax is 40,000. Determine earning per share and book value. Tax rate = 40%.

Project finance is the long-term financing of a specific project (such as a hydropower plant, road or pipeline) in which the lenders and investors look mainly at the cash flow and assets of the project itself, not at the balance sheet of the sponsors, for repayment of the debt and return on equity. A separate legal entity (special purpose vehicle, SPV) is usually formed for the project.

Data

  • 500 ordinary shares at Rs 100 = Rs 50,000
  • 300 preference shares at Rs 100 = Rs 30,000 at 15%
  • Loan Rs 30,000 at 12%
  • EBIT = Rs 40,000; tax = 40%

EPS

Interest=30,000×12%=3,600EBT=40,000−3,600=36,400Tax=40%×36,400=14,560EAT=36,400−14,560=21,840Preference dividend=30,000×15%=4,500Earnings for equity=21,840−4,500=17,340EPS=17,340500=34.68\begin{aligned} \text{Interest} &= 30,000 \times 12\% = 3,600\\ \text{EBT} &= 40,000 - 3,600 = 36,400\\ \text{Tax} &= 40\% \times 36,400 = 14,560\\ \text{EAT} &= 36,400 - 14,560 = 21,840\\ \text{Preference dividend} &= 30,000 \times 15\% = 4,500\\ \text{Earnings for equity} &= 21,840 - 4,500 = 17,340\\ EPS &= \frac{17,340}{500} = 34.68 \end{aligned}

Book value

Book value per share = net worth belonging to ordinary shareholders / number of ordinary shares. No reserves or retained earnings are given, so net worth equals the ordinary share capital (preference capital and loan are not part of it).

BV=50,000500=100.00BV = \frac{50,000}{500} = 100.00

Answer: EPS = Rs 34.68 per share; book value = Rs 100.00 per share.

✓ Answer checked by Claude Opus 5.5 (high effort)

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