A firm has a capital structure of Rs. 10,00,000. The equity capital is of Rs. 10 each and debt carries rate of interest of 10% p.a. The firm is financed by 75% equity and 25% debt. EBIT is Rs. 7,50,000. Tax rate is 40%. Then EPS will be Rupees:
options:
5.8
7.5
6
4
Answers
Answer:
5.8 will be the repees
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The EPS will be 5.8 Rupees
Given,
The capital structure of a firm = Rs. 10,00,000
The equity capital = Rs. 10
The rate of interest the debt carries = 10% p.a
Also, the firm is financed by 75% equity and 25% debt
The EBIT is Rs. 7,50,000.
The tax rate is 40%
To find,
The EPS
Solution,
The Equity share capital = 10,00,000 * 75%
= 10,00,000 * 75/100
= 7,50,000
Debt = 10,00,000 * 25%
= 10,00,000 * 25/100
= 2,50,000
Interest = 2,50,000 * 10%
= 25,000
The shares that the Equity shareholder has = 7,50,000/10
= 75,000 shares
EBIT = 7,50,000
Deduct the interest from it, we get., 7,50,000 - 25,000 = 7,25,000
which is the EBT = 7,25,000
the tax at the rate of 40%, and we get., 2,90,000
Now, the earning available of Equity shareholder = 7,25,000 - 2,90,000
= 4,35,000
EPS = Earning available / Equity shareholders
EPS = 4,35,000 / 75,000
Therefore, the EPS is 5.8 Rupees
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