---
title: "EPS and book value; 5000 shares, EBIT 3,50,000"
subject: "Project Engineering"
chapter: 6
key: "semester_7/project_engineering:eps-bv-5000-shares-300000-pref"
source: https://www.bctengineer.com/q/semester_7/project_engineering/eps-bv-5000-shares-300000-pref
site: BCT Engineering
---

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

Project Engineering · Chapter 6: Introduction to Project Financing

- Asked in: 2074 Chaitra, 6 marks; 2079 Baisakh (asked 2 times)
- 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-5000-shares-300000-pref
- Whole chapter: https://www.bctengineer.com/md/semester_7/project_engineering/chapter-6

## Question

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.

## 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.

## Answer

#### 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

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

#### 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).

$$
BV = \frac{500,000}{5{,}000} = 100.00
$$

**Answer: EPS = Rs 42.30 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. What is the tax paid in the problem?
   A. Rs 87,500
   B. Rs 82,500
   C. Rs 61,875
   D. Rs 90,000
   Answer: B. Interest 20,000; EBT = 330,000; tax = 25% x 330,000 = 82,500. (Key point: EBT and tax)

2. How is preference dividend treated in calculating EPS?
   A. Deducted before tax as interest
   B. Ignored completely
   C. Deducted from EAT, after tax: Rs 36,000
   D. Added to EAT
   Answer: C. Preference dividend is paid from after-tax profit: 300,000 x 12% = 36,000. (Key point: Preference dividend)

3. What is EPS?
   A. Rs 49.50
   B. Rs 49.20
   C. Rs 35.10
   D. Rs 42.30
   Answer: D. Earnings for equity = 247,500 - 36,000 = 211,500; divided by 5,000 = 42.30. (Key point: EPS result)

4. Why is book value per share Rs 100?
   A. No reserves are given, so net worth equals ordinary share capital Rs 500,000 / 5,000
   B. Preference capital and loan are added to net worth
   C. EPS is added to share capital
   D. Book value equals EPS
   Answer: A. Net worth to ordinary shareholders excludes preference capital and loans. (Key point: Book value)

## Related in Project Engineering

- [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; 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 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
- [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
- [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; 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

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