Question

Calculate earnings per share if a company, with 1 million shares with a market price of $4 each and zero debt, decides to buy back 25 per cent of its outstanding shares by borrowing at 10% p.a. Assume current earnings are $0.4 million and taxes do not apply.

Answer 1

ANS Calculation 4 Eorning per Share After buy back and before boy back (1) Earning per share before buy back Eps = Earnings Avilable to equity shore bolders number of outstanding equity shares $ 0.4 million = $0.4 per share I million shares (2) Earning per share after buy back $ 0.30 million a $ Eps = , shares D•< Pcx Share 0.75 million working notes il sof existing number of shares i million . less - 0.25 million Boy back of shares 1 million x 25%. 0.75 million - outstanding number of shares After buy back

working note - alii) Earnings avilable to equity share holders - Particulars Amount Existing (current earnings $ 0.40 million less Interest on borrowings | $ 0.10 million $ 1 million X 100% Earnings T $ 0. 30 million avilable to equity Share holders buy back of toorking note lill) Amount of loan borrowed for shares number of shares buy back x 1 X market price $ 4 I million X 25%. = $ 1 million