Georgia Office Supplies recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and...

Georgia Office Supplies recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 40%. The firm had 1,000 shares outstanding.

1) How much was the firm's taxable income, or earnings before taxes (EBT)?

EBT = $12,500 - $7,250 - $1,250 - (.075 x $8,000) = $3,400

2) What is the firm’s earnings per share (EPS), assuming a Dividend of $100?

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Expert Solution

(1)-Firm's taxable income, or earnings before taxes (EBT)
Particulars	Amount ($)
Sales	12,500
Less: Operating Costs	7,250
Less: Depreciation Expenses	1,250
Earnings Before Interest & Tax (EBIT)	4,000
Less: Interest Expenses [$8,000 x 7.50%]	600
Earnings Before Tax (EBT)	3,400


(2)-Firm’s earnings per share (EPS)
Particulars	Amount ($)
Earnings Before Tax (EBT)	3,400
Less: Tax at 40%	1,360
Net Income	2,040
(/) Number of common shares outstanding	1,000 Shares
Earnings per share (EPS) [$2,040 / 1,000 Shares]	$2.04 per share

jeff jeffy answered 1 month ago

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