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

Sharma Textiles Ltd has EBIT of ₹12,00,000. It has 10% debentures of ₹40,00,000 and 1,00,000 equity shares of ₹10 each. The tax rate is 25%. What is the EPS?

EPS is ₹6.00. Interest of ₹4,00,000 is deducted from EBIT of ₹12,00,000 to give EBT of ₹8,00,000; tax at 25% leaves PAT of ₹6,00,000, which divided by 1,00,000 shares gives ₹6 per share.

  1. A₹6.00Correct
  2. B₹5.00
  3. C₹6.40
  4. D₹8.00

Explanation

Interest = 10% × 40,00,000 = 4,00,000. EBT = 12,00,000 − 4,00,000 = 8,00,000. Tax at 25% = 2,00,000, so PAT = 6,00,000. EPS = 6,00,000 / 1,00,000 = ₹6.00. ₹8.00 results from ignoring tax, and ₹12 would ignore interest.

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