Question

Pharrell, Inc., has sales of $595,000, costs of $263,000, depreciation expense of $66,000, interest expense of $33,000, and a tax rate of 30 percent. The firm paid out $41,000 in cash dividends and has 50,000 shares of common stock outstanding.

Answer 1

Answer:

For calculating earnings per share, we are going to need net income.

Net income before tax = Sales – (Costs + Depreciation expenses + Interest expense)

= 595000 – (263000 + 66000 + 33000)

= 595000 – 362000

Net income before tax = $233,000

Tax paid by the firm = 30% of 233000

= (30/100) x 233000

Amount of tax           = $69,900

So, net income after tax = 233000 – 69900

= $163,100

Earnings per share (EPS)

EPS is that portion of the company’s earnings that is assigned to each company stock. It is an indicator of the company’s profitability. EPS is calculated as –

EPS = Net income / Average outstanding common shares

We are given that outstanding common shares = 50,000

Also, we have just calculated net income = $163,100

So, EPS = 163100 / 50000 = 3.262

Therefore, required earnings per share is 3.26.

2.Dividend Per Share (DPS)

DPS is the sum of dividends paid by the company against each of its outstanding shares. A company’s DPS is mostly calculated quarterly and it is used in calculating dividend yield. DPS can be calculated as –

DPS = Total sum of dividends / Average outstanding common shares

       = 41000 / 50000

DPS = 0.82

Therefore, required dividends per share is 0.82.

Explanation: