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EPS and book value; 5000 shares, EBIT 3,50,000

Short answer

Interest is Rs 20,000, EBT Rs 330,000, tax Rs 82,500, EAT Rs 247,500; preference dividend Rs 36,000 leaves Rs 211,500 for equity. EPS = 211,500 / 5,000 = Rs 42.30 per share. Book value = 500,000 / 5,000 = Rs 100.00 per share.

A firm has equity capital consisting of 5000 ordinary shares @ Rs 100 per share and Rs 3,00,000 preference share at 12% interest per year and Rs 2,00,000 loan at 10% interest per year. If the firm's earnings before interest and tax is Rs 3,50,000 and the tax rate applicable is 25%, determine earning per share and book value.

Data

  • Ordinary shares: 5,000 x Rs 100 = Rs 500,000
  • Preference capital: Rs 3,00,000 at 12%
  • Loan: Rs 2,00,000 at 10%
  • EBIT = Rs 3,50,000; tax rate = 25%

EPS

Interest=200,000×10%=20,000EBT=350,000−20,000=330,000Tax=25%×330,000=82,500EAT=330,000−82,500=247,500Preference dividend=300,000×12%=36,000Earnings for equity=247,500−36,000=211,500EPS=211,5005,000=42.30\begin{aligned} \text{Interest} &= 200,000 \times 10\% = 20,000\\ \text{EBT} &= 350,000 - 20,000 = 330,000\\ \text{Tax} &= 25\% \times 330,000 = 82,500\\ \text{EAT} &= 330,000 - 82,500 = 247,500\\ \text{Preference dividend} &= 300,000 \times 12\% = 36,000\\ \text{Earnings for equity} &= 247,500 - 36,000 = 211,500\\ EPS &= \frac{211,500}{5,000} = 42.30 \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=500,0005,000=100.00BV = \frac{500,000}{5{,}000} = 100.00

Answer: EPS = Rs 42.30 per share; book value = Rs 100.00 per share.

✓ Answer checked by Claude Opus 5.5 (high effort)

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