The following is an extract from the financial statement of XYZ Ltd : (in lakh) (in lakh) Operating Profit 105 Less : Interest on debentures 33 72 Less : Income Tax (30%) 21.6 Net profit 50.4 Equity share capital (shares

Calculation of EPS and Cost of Capital for XYZ Ltd. 1. (i) Earnings Per Share (EPS): Net Profit (EAT) = ₹ 50.4 lakh Equity Share Capital = ₹ 200 lakh Number of Equity Shares = ₹ 200 lakh / ₹ 10 per share = 20,00,000 shares EPS = Net Profit / Number of Equity Shares = ₹ 50,40,000 / 20,00,000 shares = ₹ 2.52 per share 2. (ii) Percentage Cost of Capital: (a) Cost of Equity (Ke): Market Price per Equity Share (MP) = ₹ 12 Since no dividend information is given, we can use the Earnings Price Ratio method (assuming all earnings are distributed or retained for growth that reflects in price). Ke = EPS / MP = ₹ 2.52 / ₹ 12 = 0.21 or 21% (b) Cost of Debenture Funds (Kd): Nominal Value of Debentures = ₹ 220 lakh Interest Cost for the year = ₹ 33 lakh Tax Rate = 30% Market Price per Debenture = ₹ 93.75 Number of Debentures = ₹ 220 lakh / ₹ 100 per debenture = 2,20,000 debentures Market Value of Debentures = 2,20,000 debentures × ₹ 93.75 = ₹ 206.25 lakh Cost of Debenture Funds (Kd) at Book Value: Interest after Tax = Interest × (1 - Tax Rate) = ₹ 33 lakh × (1 - 0.30) = ₹ 33 lakh × 0.70 = ₹ 23.10 lakh Kd (Book Value) = (Interest after Tax / Book Value of Debentures) × 100 = (₹ 23.10 lakh / ₹ 220 lakh) × 100 = 10.50% Cost of Debenture Funds (Kd) at Market Price: Kd (Market Price) = (Interest after Tax / Market Value of Debentures) × 100 = (₹ 23.10 lakh / ₹ 206.25 lakh) × 100 = 11.20%