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Answers to questions

Question 2

EPS

PGR currently has an EPS of 8c per share with 2 million shares in issue. A
proposed new project will increase profit after tax by $50,000 per annum and
will be financed by the issue of 250,000 new shares.

Calculate the new earnings per share.

EPS = PAT/number of shares

PAT = EPS × number of shares

PAT = $0.08 × 2,000,000 = $160,000

New PAT = $160,000 + $50,000 = $210,000

New number of shares = 2,000,000 = 250,000 = 2,250,000

New EPS = $210,000/2,250,000 = $0.093 per share

Investors will welcome this change as it has led to a rise in the EPS.

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