---
title: "Dividend per ordinary share, 500 shares, tax 20%"
subject: "Project Engineering"
chapter: 6
key: "semester_7/project_engineering:dividend-per-share-500-shares-b81"
source: https://www.bctengineer.com/q/semester_7/project_engineering/dividend-per-share-500-shares-b81
site: BCT Engineering
---

# Dividend per ordinary share, 500 shares, tax 20%

Project Engineering · Chapter 6: Introduction to Project Financing

- Asked in: 2081 Bhadra, 5 marks
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_7/project_engineering/dividend-per-share-500-shares-b81
- Whole chapter: https://www.bctengineer.com/md/semester_7/project_engineering/chapter-6

## Question

The capital structure of a firm consists of 500 ordinary shares @ Rs 100/share and Rs 30,000 preference share @ 15% interest per year. The firm has a loan of 30,000 @ 12% per year. Earnings before interest and tax is 40,000. Determine the dividend provided to each share for ordinary shareholders if tax rate is 20%.

## Short answer

After deducting interest (Rs 3,600) and tax (20%), EAT is Rs 29,120. Subtracting preference dividend (Rs 4,500) leaves Rs 24,620 for ordinary shareholders, giving a dividend per share of Rs 49.24.

## Answer

#### Data

- 500 ordinary shares at Rs 100 = Rs 50,000
- Preference shares Rs 30,000 at 15%
- Loan Rs 30,000 at 12%
- EBIT = Rs 40,000; tax = 20%

Assumption: the whole profit available to ordinary shareholders is paid as dividend (so dividend per share = EPS).

$$
\begin{aligned}
\text{Interest} &= 30{,}000 \times 12\% = 3,600\\
\text{EBT} &= 40{,}000 - 3,600 = 36,400\\
\text{Tax} &= 20\% \times 36,400 = 7,280\\
\text{EAT} &= 36,400 - 7,280 = 29,120\\
\text{Preference dividend} &= 30{,}000 \times 15\% = 4,500\\
\text{Earnings for ordinary shareholders} &= 29,120 - 4,500 = 24,620\\
\text{Dividend per share} &= \frac{24,620}{500} = 49.24
\end{aligned}
$$

**Answer: Dividend per ordinary share = Rs 49.24.**

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. Tax at 20% on EBT 36,400 is:
   A. 14,560
   B. 7,280
   C. 8,000
   D. 3,640
   Answer: B. 0.20 x 36,400 = 7,280. (Key point: Tax)

2. Preference dividend is deducted:
   A. Before interest
   B. Never
   C. After tax, before ordinary shareholders
   D. From EBIT before tax
   Answer: C. Preference dividend is paid out of EAT before ordinary shareholders. (Key point: Preference dividend)

3. Dividend per ordinary share is:
   A. Rs 58.24
   B. Rs 24.62
   C. Rs 72.80
   D. Rs 49.24
   Answer: D. 24,620/500 = 49.24. (Key point: Dividend per share)

## Related in Project Engineering

- [EPS and book value; 500 shares, EBIT 40,000, tax 40%](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeps-bv-500-shares-300-pref) — Project Engineering, chapter 6
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