Here standard deviation in E.P.S. is required, so at first E.P.S. will be calculated as follows :-

Calculation of E.P.S. :- ( amount $ in millions.)

Ressession Average    Boom

E.B.I.T. 5.306 10.612 17.6614

Less : Interest (@ 10%) (W.N. 1)    6.064 6.064 6.064

E.B.T. -0.758 4.548    11.5974

Less: tax (since tere is no tax) 0.00. 0.00 0.00

E.A.T. -0.758 4.548 11.5974

Number of Shares 9.475 9.475 9.475

Earning Per Share (E.P.S)= -0.08 0.48 1.224

(E.A.T. / Number of shares)

CALCULATION OF STANDARD DEVIATION IN E.P.S :-

1. 2. 3. 4. 5. 6.

State Probability (prob.) E.P.S. E.P.S. * Prob. (E.P.S.*Prob.) - (Sum of column 4) ( Column 5 ) *(column 5) * Prob.

Recession 0.20 - 0.08 -.016 -0.49 0.04802

Average 0.55 0.48 0.264 0.07 0.0027

Boom 0.25 1.224 0.306 0.814 0.1656

Total 0.41 0.21632

The value in column 6 is the Variance of E.P.S.

Thus standard deviation = root value of 0.21632 = 0.4651 or 0.47. Answer.

Working note 1.:-

value of debt = 20% of the value of equity.

so debt value = 20% of $ 303.20 million = $ 60.64 million

interest rare of debt is taken as 10 % , so interest is 10 % of 60.64.

Working note 2 :-

Number of shares = total share capital / price per share.

= 303.20/32 = 9.475 million shares.

NOTE :-

E.B.I.T. means Earnings before interest and tax.

E.B.T. means Earnings before tax

E.A.T. means Earnings after tax

Standard deviation is the square root value of Variance.