A firm has a market value equal to its book value. Currently, the firm has excess cash of $300 and other assets of $8,700. Equity is worth $9,000. The firm has 375 shares of stock outstanding and net income of $800. The firm has decided to pay out all of its excess cash as a cash dividend. What will the earnings per share be after the dividend is paid?

Question

Quizplus · Accepted Answer

The earnings per share (EPS) calculation is not affected by the payment of a dividend. EPS is calculated as net income divided by the number of shares outstanding. Given that the net income is $800 and there are 375 shares outstanding, the EPS is $800 / 375 = $2.13.

A Firm Has a Market Value Equal to Its Book