Orbit Ltd. has 30,000 shares outstanded and earned $30,000 on capital invested of $90,000 last year. What is the new EPS after the investment succeeds?

Question

Quizplus · Accepted Answer

First, we need to calculate the earnings per share (EPS) for the current year:

EPS = (Net Income – Preferred Dividends) / Average Outstanding Shares

EPS = ($30,000 - $0) / 30,000

EPS = 1.00

Next, we need to calculate the new net income based on the success of the investment. We know that the company invested $90,000 and earned a return on that investment, but we don't know the exact amount. Let's assume that the return was 10%:

New Net Income = $30,000 + (10% * $90,000)

New Net Income = $39,000

Finally, we can calculate the new EPS using the same formula as before:

New EPS = ($39,000 - $0) / 30,000

New EPS = 1.30

Therefore, the answer is C because the new EPS is 1.30.

Orbit Ltd Has 30,000 Shares Outstanded and Earned $30,000 on Capital