There are no taxes. EBIT is expected to be $2.5 million, but could be as high as $3.5 million if an economic expansion occurs, or as low as $2 million if a recession occurs. All values are market
Values.
What is EPS under the current capital structure if there is a recession?
A) $3.33
B) $4.17
C) $5.00
D) $6.25

Question

Quizplus · Accepted Answer

EPS = EBIT / Number of shares outstandingNumber of shares outstanding = Market value of equity / Price per shareMarket value of equity = $20 millionPrice per share = $10Number of shares outstanding = 2 millionEPS = $2 million / 2 million = $1 per share

There Are No Taxes