A firm has 30,000 shares of stock outstanding, $450,000 in debt at a 9% rate, an EBIT of $112,000, and a tax rate of 0%. What is the EPS?
A) $2.38
B) $2.51
C) $2.87
D) $3.36
E) $3.73

Question

Quizplus · Accepted Answer

First, calculate the interest expense, which is 9% of $450,000 = $40,500. Subtract this from the EBIT to get earnings before taxes (EBT), which is $112,000 - $40,500 = $71,500. Since the tax rate is 0%, the net income is also $71,500. Divide this by the number of shares (30,000) to get the EPS: $71,500 / 30,000 = $2.38.

A Firm Has 30,000 Shares of Stock Outstanding, $450,000 in Debt