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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 |
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