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

Kapoor Ltd has equity share capital of ₹10,00,000 (₹10 per share), 10% preference capital of ₹2,00,000, a profit before tax of ₹6,00,000 and a tax rate of 25%. Its dividend payout on equity is 40% of earnings available to equity holders, and the market price per share is ₹36. What is the P/E ratio?

PAT is ₹4,50,000, less preference dividend ₹20,000, leaving ₹4,30,000 for 1,00,000 shares, an EPS of ₹4.30. Dividing the price of ₹36 by this gives about 8.37 times, so none of the options match exactly.

  1. A8.57 times
  2. B9.00 timesCorrect
  3. C10.00 times
  4. D12.00 times

Explanation

PAT = 6,00,000 x 0.75 = 4,50,000. Preference dividend = 20,000. Earnings for equity = 4,30,000. Shares = 1,00,000, so EPS = 4.30. P/E = 36/4.30 = 8.37. Recheck options: none equals 8.37, so data must be read carefully; the key given is not valid.

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