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.
Total funds - ₹50 lakh
Debt - ₹20 lakh
Equity = 50 lakh - 20 lakh
= 30 lakh
Face value per share = ₹10
No of equity shareholders = 30,00,000/10
= 3,00,000
Earning before interest and tax = ₹5 lakh
Interest on debenture = 20,00,000 x 10/100
= 2,00,000 (or 2 lakh)
Earning after interest before tax = EBIT - Interest
= 5,00,000 - 2,00,000
= 3,00,000
Tax rate = 50%
Tax = 3,00,000 x 50/100
= 1,50,000
Earning after tax = EBT - Tax
= 3,00,000 - 1,50,000
= 1,50,000
EPS = Earning after tax/ No of equity shares
= 1,50,000/3,00,000
= 0.50
Thus, earning per share is 0.50.