Skip to main content

EPS and book value; ABC project Rs 6,00,000

Short answer

Interest = Rs 22,500; EBT = Rs 102,500; tax (30%) = Rs 30,750; EAT = Rs 71,750; preference dividend = Rs 40,000; earnings for equity = Rs 31,750. EPS = Rs 31,750 / 2,000 = Rs 15.88. Book value = Rs 2,00,000 / 2,000 = Rs 100.00.

ABC project has total capital of Rs 6,00,000 that consists of 2,000 shares @ Rs 100; 2,50,000 preference share at 16% interest and remaining borrowed from bank as loan @ 15% interest. Earnings before interest and tax in a year is Rs 1,25,000. Calculate earnings per share and book value of share if tax is 30%. (What are the different sources of project finance to establish a construction company?)

Sources of project finance for a construction company

  • Equity: promoters' capital, ordinary shares, public issue, retained earnings
  • Preference shares
  • Debt: bank and financial institution loans, debentures
  • Others: supplier credit, leasing, equipment financing, government and donor support, advance from clients

Data

  • Ordinary shares: 2,000 x Rs 100 = Rs 200,000
  • Preference share = Rs 2,50,000 at 16%
  • Loan = 6,00,000 - 2,00,000 - 2,50,000 = Rs 150,000 at 15%
  • EBIT = Rs 1,25,000; tax = 30%

EPS

Interest=150,000×15%=22,500EBT=125,000−22,500=102,500Tax=30%×102,500=30,750EAT=102,500−30,750=71,750Preference dividend=250,000×16%=40,000Earnings for equity=71,750−40,000=31,750EPS=31,7502,000=15.88\begin{aligned} \text{Interest} &= 150,000 \times 15\% = 22,500\\ \text{EBT} &= 125,000 - 22,500 = 102,500\\ \text{Tax} &= 30\% \times 102,500 = 30,750\\ \text{EAT} &= 102,500 - 30,750 = 71,750\\ \text{Preference dividend} &= 250,000 \times 16\% = 40,000\\ \text{Earnings for equity} &= 71,750 - 40,000 = 31,750\\ EPS &= \frac{31,750}{2,000} = 15.88 \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=200,0002,000=100.00BV = \frac{200,000}{2{,}000} = 100.00

Answer: EPS = Rs 15.88 per share; book value = Rs 100.00 per share.

✓ Answer checked by Claude Opus 5.5 (high effort)

Related questions

All Project Engineering chapter 6 questions →