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Realm is financed by $5m 10% preference shares, and $5m equity.
Calculate the return to each provider of finance if Realm’s profits are:
i. $1m
ii. $1.3m
iii. $700,000i) interest on preference shares = 10% * $5m = $0.5m
profit 1m – interest 0.5m = $0.5 m for equity shareholders.
Earnings per share
preference shares – 0.5/5 = $0.10 = 10c
equity shares – 0.5/5 = 10cii) interest on pref. shares = 10% * $5m = 0.5m
profit 1.3m – interest 0.5m = 0.8m for equity shareholders.
EPS
preference shares – 0.5/5 = $0.10 = 10c
equity shares – 0.8/5 = 16ciii) interest on pref. shares = 10% * $5m = 0.5m = $500,000
profit $700,000 – interest $500,000 = $200,000 for equity shareholders
EPS
preference shares -$500,000/ $5,000,000 = 10c
equity shares – $200,000 / $5,000,000 = 4c
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