Chapter - Capital Structure

Capital Structure
Solution 1:
Computation of level of earnings before interest and tax (EBIT)
In case alternative (i) is accepted, then the EPS of the firm would be:
(𝐸𝐵𝐼𝑇 – 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡) (1 – 𝑡𝑎𝑥 𝑟𝑎𝑡𝑒) (𝐸𝐵𝐼𝑇 – 0.14 𝑥 8,00,000) (1 – 0.3)
EPS Alternative (i) = 𝑁𝑜. 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒𝑠
= 1,20,000 𝑠ℎ𝑎𝑟𝑒𝑠

In case the alternative (ii) is accepted, then the EPS of the firm would be
(𝐸𝐵𝐼𝑇 – 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡) (1 – 𝑇𝑎𝑥 𝑅𝑎𝑡𝑒) – 𝑃𝐷
EPS Alternative (ii) = 𝑁𝑜. 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒𝑠
(𝐸𝐵𝐼𝑇 – 0.14 𝑥 8,00,000) (1 – 0.3)
= 80,000 𝑠ℎ𝑎𝑟𝑒𝑠
– 0.16 x 4,00,000

In order to determine the indifference level of EBIT, the EPS under the two alternative plans should be equated
as follows:
(𝐸𝐵𝐼𝑇 – 0.14 𝑥 8,00,000)(1− 0.3) (𝐸𝐵𝐼𝑇 – 0.14 𝑥 8,00,000)(1− 0.3)
1,20,000 𝑠ℎ𝑎𝑟𝑒𝑠
= 80,000 𝑠ℎ𝑎𝑟𝑒𝑠
– 0.16 x 4,00,000

0.7 𝐸𝐵𝐼𝑇 – 78,400 0.7 𝐸𝐵𝐼𝑇 − 1,42,400

Or, 1,20,000
= 80,000

Or 1.40 EBIT – ₹1,56,800 = 2.10 EBIT – ₹ 4,27,200

Or 0.70 EBIT = ₹ 2,70,400
2,70,400
Or, EBIT = 0.7

Or, EBIT = ₹ 3,86,285.71(approx.)

Solution 2:
(i) Computation of EPS under three-financial plans
Plan I: Equity Financing
(₹ ) (₹) (₹) (₹) (₹ )
EBIT 20,000 40,000 80,000 1,20,000 2,00,000
Interest 0 0 0 0 0
EBT 20,000 40,000 80,000 1,20,000 2,00,000
Less: Tax @ 50% 10,000 20,000 40,000 60,000 1,00,000
PAT 10,000 20,000 40,000 60,000 1,00,000
No. of equity shares 1,00,000 1,00,000 1,00,000 1,00,000 1,00,000
EPS 0.10 0.20 0.40 0.60 1

Plan II: Debt – Equity Mix

(₹) (₹) (₹) (₹) (₹)
EBIT 20,000 40,000 80,000 1,20,000 2,00,000
Less: Interest 40,000 40,000 40,000 40,000 40,000
EBT (20,000) 0 40,000 80,000 1,60,000
Less: Tax @ 50% 10,000* 0 20,000 40,000 80,000
PAT (10,000) 0 20,000 40,000 80,000
No. of equity shares 50,000 50,000 50,000 50,000 50,000
EPS (₹ 0.20) 0 0.40 0.80 1.60
* The Company can set off losses against the overall business profit or may carry forward it to next financial
years.

Plan III: Preference Shares – Equity Mix

(₹ ) (₹ ) (₹ ) (₹ ) (₹ )
EBIT 20,000 40,000 80,000 1,20,000 2,00,000
Less: Interest 0 0 0 0 0
EBT 20,000 40,000 80,000 1,20,000 2,00,000
Less: Tax @ 50% 10,000 20,000 40,000 60,000 1,00,000
PAT 10,000 20,000 40,000 60,000 1,00,000

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 Chapter - Capital Structure

Less: Pref. dividend 40,000* 40,000* 40,000 40,000 40,000

PAT after Pref. dividend. (30,000) (20,000) 0 20,000 60,000
No. of Equity shares 50,000 50,000 50,000 50,000 50,000
EPS (0.60) (0.40) 0 0.40 1.20
* In case of cumulative preference shares, the company has to pay cumulative dividend to preference
shareholders, when company earns sufficient profits.

(ii)From the above EPS computations tables under the three financial plans we can see that when EBIT
is ₹ 80,000 or more, Plan II: Debt-Equity mix is preferable over the Plan I and Plan III, as rate of EPS is
more under this plan. On the other hand an EBIT of less than ₹ 80,000, Plan I: Equity Financing has
higher EPS than Plan II and Plan III. Plan III Preference share Equity mix is not acceptable at any level
of EBIT, as EPS under this plan is lower.
The choice of the financing plan will depend on the performance of the company and other macro economic
conditions. If the company is expected to have higher operating profit Plan II: Debt – Equity Mix is preferable.
Moreover, debt financing gives more benefit due to availability of tax shield.

Solution 3:
Ascertainment of probable price of shares of Prakash limited
Plan-I Plan-II
If ₹ 5,00,000 is raised If ₹ 5,00,000
Particulars as debt is raised by
issuing equity
(₹) Shares (₹)
Earnings Before Interest and Tax (EBIT)
{20% of new capital i.e., 20% of (₹15,00,000 + 4,00,000 4,00,000
₹ 5,00,000)}
(Refer working note1)
Less: Interest on old debentures (10% of ₹5,00,000) (50,000) (50,000)
Less: Interest on new debt (12% of ₹5,00,000) (60,000) --
Earnings Before Tax (EBT) 2,90,000 3,50,000
Less: Tax @ 50% (1,45,000) (1,75,000)
Earnings for equity shareholders (EAT) 1,45,000 1,75,000
No. of Equity Shares (refer working note 2) 25,000 35,000
Earnings per Share (EPS) ₹ 5.80 ₹ 5.00
Price/ Earnings (P/E) Ratio (refer working note 3) 8 10
Probable Price Per Share (PE Ratio × EPS) ₹ 46.40 ₹ 50
Working Notes:
1. Calculation of existing Return of Capital Employed (ROCE):
(₹)
Equity Share capital (25,000 shares × ₹10) 2,50,000
(
10% Debentures ₹50, 000 × 10
100
) 5,00,000
Reserves and Surplus 7,50,000
Total Capital Employed 15,00,000
Earnings before interest and tax (EBIT) (given) 3,00,000
₹3,00,000
ROCE = ₹15,00,000 × 100 20%
2. Number of Equity Shares to be issued in Plan-II:
₹5,00,000
= ₹50 = 10,000 Shares
Thus, after the issue total number of shares = 25,000+ 10,000 = 35,000 shares
3. Debt/Equity Ratio if ₹ 5,00,000 is raised as debt:
₹10,00,000
= ₹20,00,000 ×100 = 50%
As the debt equity ratio is more than 40% the P/E ratio will be brought down to 8 in Plan-I

Solution 6:
Particulars Plan I (₹.) Plan II (₹.) Plan III (₹.) Plan IV (₹.)
Equity Share Capital 16,00,000 14,00,000 13,00,000 13,00,000

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12% Long Term Loan (₹.) - 2,00,000 - -

9% Debentures - - 3,00,000 -
6% Preference Shares - - - 3,00,000
EBIT 4,00,000 4,00,000 4,00,000 4,00,000
Interest on Debentures/Term
Loan Nil (24,000) (27,000) Nil
(₹. 3,00,000
(₹. 2,00,000 ×12%) ×9%)
EBT 4,00,000 3,76,000 3,73,000 4,00,000
Tax at 40% (1,60,000) (1,50,400) (1,49,200) (1,60,000)
EAT 2,40,000 2,25,600 2,23,800 2,40,000
Preference Dividend Nil Nil Nil (18,000)
Residual Earnings 2,40,000 2,25,600 2,23,800 2,22,000
No. of Equity Shares 1,60,000 1,40,000 1,30,000 1,30,000
𝑅𝑒𝑠𝑖𝑑𝑢𝑎𝑙 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠
EPS = 𝑁𝑜.𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒𝑠 ₹. 1.50 ₹.1.61 ₹. 1.72 ₹. 1.71
𝐸𝐵𝐼𝑇
DFL(For Interest) = 𝐸𝐵𝑇 1.00 times 1.06 times 1.07 times 1.00 times
DFL (For Interest & Pref.
Dividend) 1.00 times 1.06 times 1.07 times 1.08 times
𝐸𝐵𝐼𝑇 ₹.4,00,000
DFL (With Interest and Preference Dividend) = 𝐸𝐵𝐼𝑇−𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡−𝑃𝑟𝑒 𝑇𝑎𝑥 𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 = ₹.4,00,000−𝑁𝑖𝑙−₹.30,000
= 1.08
𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 ₹.18,000
Pre tax preference Dividend = (100%−𝑇𝑎𝑥 𝑅𝑎𝑡𝑒) = 60% = ₹. 30,000

Solution 11:
(i) Computation of Earnings per Share (EPS)
Plans X (₹) Y (₹) Z (₹)
Earnings before interest & tax (EBIT) 1,00,000 1,00,000 1,00,000
Less: Interest charges (10% of ₹ 2,00,000) -- (20,000) --
Earnings before tax (EBT) 1,00,000 80,000 1,00,000
Less: Tax @ 50% (50,000) (40,000) (50,000)
Earnings after tax (EAT) 50,000 40,000 50,000
Less: Preference share dividend (10% of ₹ 2,00,000) -- -- (20,000)
Earnings available for equity shareholders (A) 50,000 40,000 30,000
No. of equity shares (B) 20,000 10,000 10,000
Plan X = ₹ 4,00,000/ ₹ 20
Plan Y = ₹ 2,00,000 / ₹ 20
Plan Z = ₹ 2,00,000 / ₹ 20
E.P.S (A ¸ B) 2.5 4 3

(ii) Computation of Financial Break-even Points

Financial Break-even point = Interest + Preference dividend/(1 - tax rate)
Proposal ‘X’ =0
Proposal ‘Y’ = ₹ 20,000 (Interest charges)
Proposal ‘Z’ = Earnings required for payment of preference share dividend
= ₹ 20,000 ÷ (1- 0.5 Tax Rate) = ₹ 40,000

(iii) Computation of Indifference Point between the plans

Combination of Proposals
a. Indifference point where EBIT of proposal “X” and proposal ‘Y’ is equal
(𝐸𝐵𝐼𝑇)(1 – 0.5) (𝐸𝐵𝐼𝑇 – ₹ 20,000)(1 – 0.5)
20,000 𝑠ℎ𝑎𝑟𝑒𝑠
= 10,000 𝑠ℎ𝑎𝑟𝑒𝑠
0.5 EBIT = EBIT – ₹ 20,000
EBIT = ₹ 40,000

b. Indifference point where EBIT of proposal ‘X’ and proposal ‘Z’ is equal:
(𝐸𝐵𝐼𝑇)(1 – 0.5) 𝐸𝐵𝐼𝑇 (1 – 0.5) – ₹ 20,000
20,000 𝑠ℎ𝑎𝑟𝑒𝑠
= 10,000 𝑠ℎ𝑎𝑟𝑒𝑠
0.5 EBIT = EBIT- ₹ 40,000

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 Chapter - Capital Structure

0.5 EBIT = ₹ 40,000

₹ 40,000
EBIT = 0.5 = ₹ 80,000

c. Indifference point where EBIT of proposal ‘Y’ and proposal ‘Z’ are equal
(𝐸𝐵𝐼𝑇 – ₹ 20,000)(1 – 0.5) 𝐸𝐵𝐼𝑇(1 – 0.5) – ₹ 20,000
10,000 𝑠ℎ𝑎𝑟𝑒𝑠
= 10,000 𝑠ℎ𝑎𝑟𝑒𝑠

0.5 EBIT – ₹ 10,000 = 0.5 EBIT – ₹ 20,000

There is no indifference point between proposal ‘Y’ and proposal ‘Z’
Analysis: It can be seen that financial proposal ‘Y’ dominates proposal ‘Z’, since the financial break-even-point
of the former is only ₹ 20,000 but in case of latter, it is ₹ 40,000. EPS of plan ‘Y’ is also higher.

Solution 12:
(i) Computation of Earnings per share (EPS)
Plans A B C
Earnings before interest and 10,00,000 10,00,000 10,00,000
tax (EBIT)
Less: Interest Charges --- (20,000) ---
(10% x 2 lakh)
Earnings before tax (EBIT) 10,00,000 9,80,000 10,00,000
Less: Tax (@30%) (3,00,000 ) (2,94,000) (3,00,000)
Earnings after tax (EAT) 7,00,000 6,86,000 7,00,000
Less: Preference Dividend --- --- (20,000)
(10% x ₹ 2 Lakh)
Earnings available for equity 7,00,000 6,86,000 6,80,000
shareholders (A)
No. of Equity Shares (B) 20,000 10,000 10,000
(₹ 4 lakh ÷ ₹ 20) (₹ 2 lakh ÷ ₹ 20) (₹ 2 lakh ÷ ₹ 20)
EPS ₹ [(A) ÷ (B)] 35 68.6 68

(ii) Calculation of Financial Break-even point

Financial break-even point is the earnings which are equal to the fixed finance charges and preference
dividend.
Plan A: Under this, plan there is no interest payment of ₹ 2,00,000 and no preference dividend. Hence, the
Financial Break-even point will be zero.

Plan B: Under this plan, there is an interest payment of ₹ 20,000 and no preference dividend. Hence, the
Financial Break-even point will be ₹ 20,000 (Interest charges)

Plan C: Under this plan, there is no interest payment but an after tax preference dividend of ₹ 20,000 is paid.
Hence, the Financial Break – even point will be before tax earnings of ₹ 28,571 (i.e. ₹ 20,000 ÷ 0.7)

(iii) Computation of indifference points between the plans.

The Indifference between two alternative methods of financing is calculated by applying the following formula.
(𝐸𝐵𝐼𝑇 – 𝐼1) (1 – 𝑇) (𝐸𝐵𝐼𝑇 – 𝐼2) (1 – 𝑇)
𝐸1
= 𝐸2

Where,
EBIT = Earnings before Interest and tax.
I1 = Fixed charges (interest or pref. dividend) under Alternative 1
I2 = Fixed charges (interest or pref. dividend) under Alternative 2
T = Tax rate
E1 = No. of equity shares in Alternative 1
E2 = No. of equity shares in Alternative 2

Now, we can calculate indifference points between different plans of financing.

(a) Indifference point where EBIT of Plan A and Plan B is equal.

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(𝐸𝐵𝐼𝑇 – 0) (1 – 0.3) (𝐸𝐵𝐼𝑇 – 20,000)(1−0.3)

20,000
= 10,000
0.7 EBIT (10,000) = (0.7 EBIT – 14,000) (20,000)
7,000 EBIT = 14,000 EBIT – 28 Crores
EBIT = 40,000

(b) Indifference point where EBIT of Plan A and Plan C is equal

(𝐸𝐵𝐼𝑇 – 0) (1 – 0.3)
(𝐸𝐵𝐼𝑇 – 0) (1−0.3)
20,000
= 10,000
– 20,000

0.7 EBIT (10,000) = (0.7 EBIT – 20,000) (20,000)

7,000 EBIT = 14,000 EBIT – 40 crores
EBIT = 57,142.86

(c) Indifference point where EBIT of Plan B and Plan C are equal
(𝐸𝐵𝐼𝑇 – 20,000) (1 – 0.3)
(𝐸𝐵𝐼𝑇 – 0) (1 – 0.3)
10,000
= 10,000
– 20,000

(0.7 EBIT – 14,000) (10,000) = (0.7 EBIT – 20,000) (10,000)

7,000 EBIT – 14 crore = 7,000 EBIT – 20 crore
There is no indifference point between the financial plans B and C.

Solution 16:
1. Profitability statement under different Plans
Plan I: Issue of 3,12,500 Equity shares at ₹. 10
Situation A B C D E
EBIT ₹. 62,500 ₹. 1,25,000 ₹. 2,50,000 ₹. 3,75,000 ₹. 6,25,000
Less: Interest on debentures Nil Nil Nil Nil Nil
EBT ₹. 62,500 ₹. 1,25,000 ₹. 2,50,000 ₹. 3,75,000 ₹. 6,25,000
Less: Tax at 40% (₹. 25,000) (₹. 50,000) (₹.1,00,000) (₹.1,50,000) (₹. 2,50,000)
EAT ₹. 37,500 ₹. 75,000 ₹. 1,50,000 ₹. 2,25,000 ₹. 3,75,000
Less: Preference Dividend Nil Nil Nil Nil Nil
Residual Earnings ₹. 37,500 ₹. 75,000 ₹. 1,50,000 ₹. 2,25,000 ₹. 3,75,000
No. of Equity shares 3,12,500 3,12,500 3,12,500 3,12,500 3,12,500
𝑅𝑒𝑠𝑖𝑑𝑢𝑎𝑙 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠
EPS = 𝑁𝑜.𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒𝑠 ₹. 0.12 ₹. 0.24 ₹. 0.48 ₹. 0.72 ₹. 1.20

Plan II: Issue of 1,56,250 equity Shares at ₹. 10 and ₹. 15,625 8% Debentures of ₹. 100
Situation A B C D E
EBIT ₹. 62,500 ₹. 1,25,000 ₹. 2,50,000 ₹. 3,75,000 ₹. 6,25,000
Less: Interest on
debentures (₹. 1,25,000) (₹. 1,25,000) (₹. 1,25,000) (₹. 1,25,000) (₹. 1,25,000)
EBT (₹. 62,500) Nil ₹. 1,25,000 ₹. 2,50,000 ₹. 5,00,000
Add: Tax Savings ₹. 25,000 - - - -
Less: Tax at 40% - Nil (₹. 50,000) (₹. 1,00,000) (₹. 2,00,000)
EAT (₹. 37,500) Nil ₹. 75,000 ₹. 1,50,000 ₹. 3,00,000
Less: Preference
Dividend Nil Nil Nil Nil Nil
Residual
Earnings (₹. 37,500) Nil ₹. 75,000 ₹. 1,50,000 ₹. 3,00,000
No. of Equity
shares 1,56,250 1,56,250 1,56,250 1,56,250 1,56,250
EPS =
𝑅𝑒𝑠𝑖𝑑𝑢𝑎𝑙 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠
𝑁𝑜.𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒𝑠 (₹. 0.24) Nil ₹. 0.48 ₹. 0.96 ₹. 1.92

Plan III: Issue of 1,56,250 Equity Shares at ₹. 10 and 15,625 8% Preference shares of ₹. 100
Situation A B C D E
EBIT ₹. 62,500 ₹. 1,25,000 ₹. 2,50,000 ₹. 3,75,000 ₹. 6,25,000

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 Chapter - Capital Structure

Less: Interest on
debentures (Nil) (Nil) (Nil) (Nil) (Nil)
EBT ₹. 62,500 ₹. 1,25,000 ₹. 2,50,000 ₹. 3,75,000 ₹. 6,25,000
Less: Tax at 40% (₹. 25,000) (₹. 50,000) (₹. 1,00,000) (₹. 1,50,000) (₹. 2,50,000)
EAT ₹. 37,500 ₹. 75,000 ₹. 1,50,000 ₹. 2,25,000 ₹. 3,75,000
Less: Preference
Dividend (₹. 1,25,000) (₹. 1,25,000) (₹. 1,25,000) (₹. 1,25,000) (₹. 1,25,000)
Residual
Earnings ₹. 87,500 ₹. 50,000 ₹. 25,000 ₹. 1,00,000 ₹. 2,50,000
No. of Equity
shares 1,56,250 1,56,250 1,56,250 1,56,250 1,56,250
EPS =
𝑅𝑒𝑠𝑖𝑑𝑢𝑎𝑙 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠
𝑁𝑜.𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒𝑠 (₹. 0.56) (₹. 0.32) ₹. 0.16 ₹. 0.64 ₹. 1.60

2. Recommendation: In order to maximise EPS, the optimal financing plan will be as under:
Situation A B C D E
EBIT ₹. 62,500 ₹. 1,25,000 ₹. 2,50,000 ₹. 3,75,000 ₹. 6,25,000
Financing plan to be selected I I I or II II II
Maximum EPS ₹. 0.12 ₹. 0.24 ₹. 0.48 ₹. 0.96 ₹. 1.92

3. Computation of EBIT – EPS Indifference Point (i.e. same EPS under two alternatives)
(a) Plan I and II
For equal EPS, Let the required EBIT be ₹. A
𝐴 × (1−0.40)
Plan I EPS = 3,12,500 𝑆ℎ𝑎𝑟𝑒𝑠
(𝐴−1,25,000)× (1−0.40)
Plan II EPS = 1,56,250 𝑆ℎ𝑎𝑟𝑒𝑠
0.6 𝐴 0.6 𝐴−75,000
3,12,500
= 1,56,250
0.6 A = 1.2 A – 1,50,000
A = ₹. 2,50,000
EBIT should be ₹. 2,50,000

(b) Plan I and II

For equal EPS, Let the required EBIT be ₹. B
𝐵 × (1 – 0.40)
Plan I EPS = 3,12,500 𝑆ℎ𝑎𝑟𝑒𝑠
𝐵 × (1−0.40)– 1,25,000
Plan II EPS = 1,56,250 𝑆ℎ𝑎𝑟𝑒𝑠
0.6 B = 1.2 B – 2,50,000
B = ₹. 4,16,667
EBIT should be ₹. 4,16,667

Solution 17.
Income statement
Particulars I(Deb) II(Equity)
Equity 50,00,000 50,00,000
New Equity - 25,00,000
New Debt @ 8% 25,00,000 -

At indifference point
(EBIT – I1)(1-t) – PD1/n1 = (EBIT – I2) (1-t) – PD2
(EBIT – 2,00,000) (1 – 50%)/5,00,000 = (EBIT – 0) (1 – 50%) – 0/7,50,000
0.5 EBIT – 1,00,000/ 50 = 0.5 EBIT/75
3.75 EBIT – 75,00,000 = 25 EBIT
12.5 EBIT = 75,00,000
EBIT = ₹ 6,00,000

Income Statement
I II

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EBIT 6,00,000 6,00,000

(-) Int (20,00,000) (-)
EBT 4,00,000 6,00,000
(-) Tax @ 50% (2,00,000) (3,00,000)
EAT/EAES 2,00,000 3,00,000
(÷) No. of shares 5,00,000 7,50,000
EPS ₹ 0.4 ₹ 0.4

Or you can verify this way

EPS1 = (6,00,000 – 2,00,000) (1 - 50%)/5,00,000 = 0.4
EPS2 = (6,00,000)(0.5)/7,50,000 = 0.4
Hence verified as EPS1 = EPS2

Uncommitted EPS means EPS which is obtained after keeping sinking fund amount of each year. Sinking fund
is applicable only in that option where debentures are present. (Not only in equity option)
Uncommitted EPS = (EBIT – I1)(1 – t) – PD – Sinking Fund/n1

At indifference point, uncommitted EPS

U EPS1 = U EPS2
(EBIT – I1) (1-t) – sinking fund/n1 = (EBIT – I2) (1-t)/n2
(EBIT – 2,00,000)(0.5) – 2,50,000/5,00,000 = (EBIT) (0.5)/7,50,000
0.5 EBIT – 1,00,000 – 2,50,000/50 = 0.5 EBIT/75
37.5 EBIT – 2,62,50,000 = 25 EBIT
12.5 EBIT = 2,62,50,000
EBIT = 21,00,000
EPS1 = (21,00,000 – 2,00,000) (0.5) – 2,50,000/5,00,000 = ₹ 1.4/share
EPS2 = (21,00,000) (0.5)/7,50,000 = ₹ 1.4/share
Hence verified as EPS1 = EPS2

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