The company's EPS for Year 8 would be $2.50 and its retained earnings for Year 8 would be $20 million
<h3>How do we calculate EPS and retained earnings?</h3>
Note: The options for the questions are as follows:
A. the company's total earnings for Year 8 would be $10 million (net income of $50 million less interest costs of $10 million less dividend payments of $30 million = $10 million).
B. the company's EPS for Year 8 would be $2.50 and its retained earnings for Year 8 would be $20 million (net income of $50 million less dividend payments of $30 million).
C. the company's credit rating would be no less than an A because operating profit is seven times higher than annual interest costs.
D. the company's EPS for Year 8 would be $5.50 and its retained earnings for Year 8 would be $10million (net income of $50 million less interest costs of $10 million less dividend payments of $30million).
E. the company's EPS for Year 8 would be $1.50 (operating profit of $70 million less interest costs of$10 million, less dividend payments of $30 million= $30 million divided by 20 million shares).
The question can now be answered as follows:
From the question, we can calculate the following:
EPS = Net income / Number of shares of common stock outstanding = $50 million / 20 million = $2.50
Dividend payments = Number of shares of common stock outstanding * Dividend per share = 20 million * $1. 50 = $30 million
Retained earnings = Net income - Dividend payments = $50 million - $30 million = $20million
Therefore, the correct option is B. the company's EPS for Year 8 would be $2.50 and its retained earnings for Year 8 would be $20 million (net income of $50 million less dividend payments of $30 million).
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