CA Intermediate · Financial Management and Strategic Management · Financing Decisions - Capital Structure
Anand Engineering Ltd has 50,000 equity shares and Rs 40,00,000 of 10% debentures. Its EBIT is Rs 12,00,000 and the tax rate is 30%. What is its earnings per share?
EPS is Rs 11.20. Interest on the debentures is Rs 4,00,000, leaving profit before tax of Rs 8,00,000. After 30% tax, profit is Rs 5,60,000, which divided by 50,000 shares gives Rs 11.20 per share.
- ARs 8.80
- BRs 11.20Correct
- CRs 16.00
- DRs 16.80
Explanation
Interest = 10% of Rs 40,00,000 = Rs 4,00,000, so EBT = Rs 8,00,000. Tax at 30% is Rs 2,40,000 and PAT is Rs 5,60,000. EPS = 5,60,000/50,000 = Rs 11.20. Rs 16.80 ignores interest, and Rs 8.80 deducts interest after taxing the full EBIT.
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