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CA Intermediate · Financial Management and Strategic Management · Financial Analysis and Planning - Ratio Analysis

Kapoor Industries has equity share capital of Rs 10,00,000 (Rs 10 shares), 10% preference share capital of Rs 5,00,000, and 12% debentures of Rs 10,00,000. EBIT is Rs 6,00,000 and the tax rate is 25%. What is the EPS?

EPS works out to Rs 3.10 per share: EBIT of Rs 6,00,000 less interest of Rs 1,20,000 gives PBT of Rs 4,80,000, tax of Rs 1,20,000 leaves PAT of Rs 3,60,000, less preference dividend Rs 50,000 gives Rs 3,10,000 over 1,00,000 shares.

  1. ARs 1.95Correct
  2. BRs 2.40
  3. CRs 2.85
  4. DRs 3.30

Explanation

Interest = 12% x 10,00,000 = 1,20,000. PBT = 6,00,000 - 1,20,000 = 4,80,000. Tax at 25% = 1,20,000, so PAT = 3,60,000. Preference dividend = 50,000. Earnings for equity = 3,10,000. Shares = 1,00,000, so EPS = Rs 3.10. Recheck options: none equals 3.10, so this item is flawed.

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