---
title: "EPS and book value; 500 shares, EBIT 40,000, tax 40%"
subject: "Project Engineering"
chapter: 6
key: "semester_7/project_engineering:eps-bv-500-shares-300-pref"
source: https://www.bctengineer.com/q/semester_7/project_engineering/eps-bv-500-shares-300-pref
site: BCT Engineering
---

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

Project Engineering · Chapter 6: Introduction to Project Financing

- Asked in: 2075 Asoj, 8 marks
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_7/project_engineering/eps-bv-500-shares-300-pref
- Whole chapter: https://www.bctengineer.com/md/semester_7/project_engineering/chapter-6

## Question

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%.

## 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.

## Answer

**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

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

#### 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).

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

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

## Check yourself

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

1. Project finance relies mainly on:
   A. The sponsors' balance sheet
   B. The cash flow and assets of the project itself
   C. Government guarantee only
   D. Past dividends
   Answer: B. Lenders look to project cash flow and assets, usually via an SPV. (Key point: Project finance)

2. Interest is 30,000 x 12% = 3,600, so EBT is:
   A. 40,000
   B. 43,600
   C. 36,400
   D. 21,840
   Answer: C. EBT = 40,000 - 3,600 = 36,400. (Key point: Interest and EBT)

3. EPS is:
   A. Rs 43.68
   B. Rs 36.40
   C. Rs 100
   D. Rs 34.68
   Answer: D. EAT 21,840 - preference dividend 4,500 = 17,340; divided by 500 gives 34.68. (Key point: EPS)

4. Book value per ordinary share is Rs 100 because:
   A. Net worth equals ordinary capital 50,000 (no reserves) divided by 500
   B. Preference capital is included
   C. The loan is included
   D. It equals EPS
   Answer: A. Preference capital and loan are not part of ordinary net worth. (Key point: Book value)

## Related in Project Engineering

- [Dividend per ordinary share, 500 shares, tax 20%](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Adividend-per-share-500-shares-b81) — Project Engineering, chapter 6
- [EPS and book value; 5000 shares, EBIT 3,50,000](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeps-bv-5000-shares-300000-pref) — Project Engineering, chapter 6, asked 2×
- [EPS and book value; Rs 10,00,000, 3500 shares](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeps-bv-capital-1000000-3500-shares) — Project Engineering, chapter 6
- [EPS and book value; ABC project Rs 6,00,000](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeps-bv-abc-project-600000-b79) — Project Engineering, chapter 6
- [EPS and book value; capital Rs 5,00,000](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeps-bv-capital-500000-2000-shares) — Project Engineering, chapter 6
- [EPS; total capital Rs 15,00,000](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeps-capital-1500000-pref-loan-a74) — Project Engineering, chapter 6