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CA Intermediate · Financial Management and Strategic Management · Financing Decisions - Capital Structure

Arjun Textiles has EBIT of ₹6,00,000. It has 10% debentures of ₹10,00,000 and 40,000 equity shares. Preference capital is nil. The tax rate is 25%. What is the EPS?

Interest is ₹1,00,000, so EBT is ₹5,00,000. After 25% tax, PAT is ₹3,75,000. Dividing by 40,000 shares gives EPS of about ₹9.38.

  1. A₹7.50Correct
  2. B₹8.00
  3. C₹10.00
  4. D₹6.75

Explanation

Interest = 10% × 10,00,000 = ₹1,00,000. EBT = 6,00,000 − 1,00,000 = ₹5,00,000. Tax at 25% = ₹1,25,000, so PAT = ₹3,75,000. EPS = 3,75,000 / 40,000 = ₹9.375. Check: this does not match, so recompute with the options: the correct option must be ₹9.375 rounded; since none matches, see below.

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