Calculate - EPS, assuming face value of a equity Share of ₹10.
Total funds - ₹50 lakh
Interest rate - 10% p.a
Tax rate - 50%
EBIT - ₹5 lakh
Debt - ₹20 lakh
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 0.50
Formula: EPS (earnings per share) = EAT (earnings after tax) ÷ Number of equity shares
So: Equity = Total funds − Debt. Interest = 10% of debt. EBT = EBIT − Interest. EAT = EBT − Tax. Shares = Equity ÷ ₹10.
Values: Total funds = ₹50 lakh, Debt = ₹20 lakh, EBIT = ₹5 lakh, Tax = 50%, Face value = ₹10
Working: Equity = ₹50 lakh − ₹20 lakh = ₹30 lakh. Interest = 10% of ₹20 lakh = ₹2 lakh. EBT = ₹5 lakh − ₹2 lakh = ₹3 lakh. Tax = 50% of ₹3 lakh = ₹1.5 lakh. EAT = ₹3 lakh − ₹1.5 lakh = ₹1.5 lakh. Shares = ₹30 lakh ÷ ₹10 = 3 lakh. EPS = ₹1.5 lakh ÷ 3 lakh = ₹0.50
NCERT (2026-27 Edition): “EBIT-EPS Analysis … Three situations are considered. There is no debt in situation-I i.e. (unlevered business). Debt of Rs. 10 lakh and 20 lakh are assumed in situations-II and III, respectively. All debt is at 10% p.a.” “The company earns Rs. 0.93 per share if it is unlevered. With debt of Rs. 10 lakh its EPS is Rs. 1.05. With a still higher debt of Rs. 20 lakh, its, EPS rises to Rs. 1.40. …” |