Question

In: Accounting

  Earnings before depreciation, interest, and taxes              $1,600,000             Depreciation expense 

  Earnings before depreciation, interest, and taxes              $1,600,000

            Depreciation expense                                                            $100,000

            Tax rate                                                                                       40%

            Interest expense                                                                      $10,000          

            Common dividends paid                                                      $200,000

            Number of shares of common stock outstanding                 $500,000

a.

1.79
b.

1.39
c.

3.20
d.

1.20

Solutions

Expert Solution

  • All working forms part of the answer
  • Working for calculation of EPS

Earnings before Depreciation, Interest and Taxes

$                       1,600,000.00

Depreciation expense

$                        (100,000.00)

Earnings before Interest and Taxes

$                       1,500,000.00

Interest expense

$                           (10,000.00)

Earnings before Taxes

$                       1,490,000.00

Income tax expense @ 40%

$                        (596,000.00)

Earnings available for Common Stock holders

$                           894,000.00

  • Answer

A

Earnings available for Common Stock holders

$                           894,000.00

B

No. of shares of common stock outstanding

$                           500,000.00

C=A/B

Earnings per share

$ 1.79 [894000 / 500000]

Correct Answer

Option 'a': $ 1.79 per share

ekkarill92 answered 1 year ago
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