FINANCIAL

management
ASSIGNMENT
GUIDED BY:
MS. BUSHRA
(ASST. professor)
PRESENTED BY:
MD. JEESHAN (081)
CLASS: PGDM 2”B” (2019-
2021)
TOPIC: eps(w2, s8)

ASIAN BUSINESS SCHOOL

WEEK 2 SESSION 8 – ASSIGNMENT

SOLUTION
EBIT- Rs 800000
Tax rate- 35%
Outstanding shares- 50000
Mkt price- Rs100
Firm can raise this fund, from the following ways-
a) Entire from equity share capital-

EBIT 800000
Int on deb (nil)
--------------
EBIT 800000
Tax 35% (280000)
----------------
 p/f after tax 520000

PAT
EPS= ---------------
No. of Share

No of share = 50000(outstanding)+25000(new)= 75000

EPS= 520000/75000

= 6.93

b) 50% from equity capital, 50% from 8% debenture

Total capital of needed= 250000/100= 25000

25000/2= 12500

Equity capital=12500
8% debenture=12500

Int on 8% debenture= 12500*100*8%

12500*8/100= 100000

EBIT = 800000
Int on deb = (100000)
--------------------
EBT= 700000
Tax 35% = (245000)
-------------------
PAT = 455000
 EPS= PAT/NO, OF SHARES
= 455000/62500
=7.28

No of shares = 50000(annuity) + 12500(new)

= 62500

c) Raise entire amt at 9% debenture

Int. on debenture= 2500000*9/100

= 225000
EBIT= 800000
Int on deb= (225000)
---------------
EBT 575000
Tax (35%) (201250)
------------------
PAT 373750

EPS= 373750/50000= 7.475

d) 50% as equity capital, 50% as 10% preference share

 =25000/2

Equity= 12500, 10% preference share=12500

Int. on preference share =1250000*10/100

= 125000

EBIT =800000
Int. on deb=(nil)
----------------
EBT 800000
Tax(35%) = (280000)
--------------------
PAT 520000
Int. on P.share =(125000)
--------------------
395000

EPS= 395000/62500
= 6.32

No. of shares= 50000(out standing)+ 12500(new)

= 62500.

Firm A should go with option(C), as if yields highest earning per share