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In: Finance

ABC Inc. just reported earnings of $35 million. It has adiscount rate of 8% on...

ABC Inc. just reported earnings of $35 million. It has a discount rate of 8% on its stock. Assume its return
on new investment is 12%. The company has 1.5 million shares outstanding. If earnings are expected to
have a perpetual growth rate of 6%, calculate ABC Inc.’s EPS1.
A. $24.73
B. $23.33
C. $25.20
D. $26.13
E. None of the options

Solutions

Expert Solution

Current EPS=Total earnings/Shares outstanding

=$35 million/1.5 million shares

=$23.3333(Approx)

Hence EPS1=Current EPS*(1+Growth rate)

=$23.3333*1.06

=$24.73(Approx)

jeff jeffy answered 1 year ago
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