---
title: "EPS and book value; ABC project Rs 6,00,000"
subject: "Project Engineering"
chapter: 6
key: "semester_7/project_engineering:eps-bv-abc-project-600000-b79"
source: https://www.bctengineer.com/q/semester_7/project_engineering/eps-bv-abc-project-600000-b79
site: BCT Engineering
---

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

Project Engineering · Chapter 6: Introduction to Project Financing

- Asked in: 2079 Bhadra, 1+4 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-abc-project-600000-b79
- Whole chapter: https://www.bctengineer.com/md/semester_7/project_engineering/chapter-6

## Question

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?)

## 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.

## Answer

#### 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

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

#### 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).

$$
BV = \frac{200,000}{2{,}000} = 100.00
$$

**Answer: EPS = Rs 15.88 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. Which of these is a debt source of project finance for a construction company?
   A. Retained earnings
   B. Bank loans and debentures
   C. Ordinary shares
   D. Promoters' capital
   Answer: B. Debt includes bank and financial institution loans and debentures; the others are equity sources. (Key point: Sources of finance)

2. Which is listed among the other sources of finance?
   A. Supplier credit or advance from clients
   B. Preference dividends
   C. Book value of shares
   D. Corporate tax savings
   Answer: A. Other sources include supplier credit, leasing, equipment financing, government/donor support and client advances. (Key point: Other financing sources)

3. What are the loan and its interest here?
   A. Rs 1,50,000 and Rs 22,500
   B. Rs 2,50,000 and Rs 37,500
   C. Rs 1,50,000 and Rs 24,000
   D. Rs 2,00,000 and Rs 30,000
   Answer: A. Loan = 6,00,000 - 2,00,000 - 2,50,000 = 1,50,000; interest at 15% = Rs 22,500. (Key point: Loan and interest)

4. What is the EPS (EAT = 71,750; preference dividend = 40,000)?
   A. Rs 35.88
   B. Rs 15.88
   C. Rs 20.00
   D. Rs 8.19
   Answer: B. (71,750 - 40,000)/2,000 = 31,750/2,000 = Rs 15.88. (Key point: EPS computation)

5. What is the book value per share and why?
   A. Rs 100, since net worth is just the Rs 2,00,000 ordinary capital
   B. Rs 225, since preference capital is added
   C. Rs 300, since total capital is divided by shares
   D. Rs 15.88, same as EPS
   Answer: A. With no reserves given, net worth = ordinary share capital, so BV = 2,00,000/2,000 = 100. (Key point: Book value)

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