A firm has a current capital structure consisting of $400,000 of 6 percent annual interest debt...
A firm has a current capital structure consisting of $400,000 of 6 percent annual interest debt and 50,000 shares of common stock. The firm's tax rate is 21 percent on ordinary income. If the EBIT is expected to be $200,000, the firm's earnings per share will be ________.
Homework Answers
Annual interest = $400000 * 6% = $24000
First we will calculate net income as per below:
Net income = (EBIT - Interest) * (1 - Tax rate)
Putting the given values in the above equation, we get,
Net income = ($200000 - $24000) * (1 - 21%)
Net income = $176000 * 0.79
Net income = $139040
Now,
Earnings per share = Net income / Total number of Common shares outstanding
Earnings per share = $139040 / 50000 = $2.78
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A firm has a current capital structure consisting of $400,000 of
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