Question

For questions 16 & 17, please use the following information: Samuel Industries had EBIT of $100,000 in 2015. The firm has $200,000 in outstanding bonds with an interest rate of 5%. The tax rate is 35%. The firm has 10,000 shares outstanding and paid $5,000 in dividends in ’15.

16. Calculate Samuel Industries’ EPS (Earnings per Share) for 2015.

17. Calculate Samuel Industries’ DPS (Dividends per Share) for 2015.

Answer 1

Calculate Samuel Industries’ EPS (Earnings per Share) for 2015.

Answer: $5.85

Calculate Samuel Industries’ DPS (Dividends per Share) for 2015.

Answer: $0.50

Working: Calculate Samuel Industries’ EPS (Earnings per Share) for 2015.

Formula for calculating EPS is as follows;

EPS         = Net Income ÷ Number of shares outstanding

               = $58,500 ÷ 10,000

               = $5.85

Where,

Number of shares outstanding = 10,000 (given in the problem)

Net Income            = (EBIT – Interest on Bond) * (1 – Tax Rate)

                                    = ($100,000 – $10,000) * (1 – 35%)

                                    = $58,500

Interest on Bond = Outstanding Bond Amount * Interest Rate

                                    = $200,000 * 5%

                                    = $10,000

Working: Calculate Samuel Industries’ DPS (Dividends per Share) for 2015.

Formula for calculating DPS is as follows;

DPS        = Total Dividend paid ÷ Number of shares outstanding

               = $5,000 ÷ 10,000

               = $0.50

Total Dividend paid = $5,000 (given in the problem)

Number of shares outstanding = 10,000 (given in the problem)