Answer the questions on the basis of the information given below.
Company X
TOTAL FUND USED = 30 LAKHS
| Face value of share |
₹10/- |
| Interest rate on Debt | 10% |
| Tax rate | 30% |
| EBIT | 4 Lakhs |
| Situation I (Debt) | Nil |
| Situation II (Debt) | 10 Lakhs |
Choose the correct answer from the options given below:
The Earning Per Share (EPS) for situation II is:
Answer & explanation
Correct answer: option 2
The correct answer is option 2- 1.05.
In this situation total fund is 30 lakhs in which 10 lakhs is debt so share capital is 20 lakhs.
EBIT = 4,00,000
less: Interest = 100000
EBT = 3,00,000 (Earnings before taxes)
less: Tax = 90,000
EAT 2,10,000
Earning per share = EAT/ no of shares
No of shares = 20 lakhs/10
= 2,00,000
EPS = 2,10,000/2,00,000
= 1.05