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EPS and book value; \$1,000,000 capital

Short answer

Interest = $45,000; EBT = $155,000; tax (20%) = $31,000; EAT = $124,000; preference dividend = $54,000; earnings for equity = $70,000. EPS = $70,000 / 4,000 = $17.50. Book value per share = $400,000 / 4,000 = $100.00.

A project has total capacity of $1,000,000 which consists of 4,000 shares @ $100; $300,000 preference shares @ 18% interest; and remaining loan @ 15% interest. Earning before income and tax in a year is $200,000. Compute the Earning per Share (EPS) and Book Value of Share, if tax rate is 20%.

Data

  • Ordinary shares: 4,000 x $100 = $400,000
  • Preference shares = $300,000 at 18%
  • Loan = 1,000,000 - 400,000 - 300,000 = $300,000 at 15%
  • EBIT = $200,000; tax = 20%

EPS

Interest=300,000×15%=45,000EBT=200,000−45,000=155,000Tax=20%×155,000=31,000EAT=155,000−31,000=124,000Preference dividend=300,000×18%=54,000Earnings for equity=124,000−54,000=70,000EPS=70,0004,000=17.50\begin{aligned} \text{Interest} &= 300,000 \times 15\% = 45,000\\ \text{EBT} &= 200,000 - 45,000 = 155,000\\ \text{Tax} &= 20\% \times 155,000 = 31,000\\ \text{EAT} &= 155,000 - 31,000 = 124,000\\ \text{Preference dividend} &= 300,000 \times 18\% = 54,000\\ \text{Earnings for equity} &= 124,000 - 54,000 = 70,000\\ EPS &= \frac{70,000}{4,000} = 17.50 \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=400,0004,000=100.00BV = \frac{400,000}{4{,}000} = 100.00

Answer: EPS = $17.50 per share; book value = $100.00 per share.

✓ Answer checked by Claude Opus 5.5 (high effort)

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