CA Intermediate · Financial Management and Strategic Management · Financing Decisions - Capital Structure
Sunrise Textiles Ltd has EBIT of ₹8,00,000, 10% debentures of ₹10,00,000 and 50,000 equity shares. Tax rate is 25%. Under the EBIT-EPS analysis, what is the EPS of the company?
EPS is ₹10.50. Interest of ₹1,00,000 is deducted from EBIT of ₹8,00,000 to give EBT of ₹7,00,000. After 25% tax, earnings are ₹5,25,000, which divided by 50,000 equity shares gives ₹10.50 per share.
- A₹10.50Correct
- B₹9.00
- C₹12.00
- D₹14.00
Explanation
Interest = 10% of 10,00,000 = ₹1,00,000. EBT = 8,00,000 - 1,00,000 = ₹7,00,000. Tax at 25% = ₹1,75,000, so EAT = ₹5,25,000. EPS = 5,25,000/50,000 = ₹10.50. ₹14.00 results from ignoring both interest and tax, and ₹12.00 from ignoring interest only.
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