Question

Ornaments, Inc., is an all-equity firm with a total market value of $663,000 and 32,800 shares of stock outstanding. Management believes the earnings before interest and taxes (EBIT) will be $95,100 if the economy is normal. If there is a recession, EBIT will be 25 percent lower, and if there is a boom, EBIT will be 35 percent higher. The tax rate is 34 percent. What is the EPS in a recession

Answer 1

EPS = $1.44 (after rounding off)

Explanation:

The calculation of Earnings per share is as follows:

Particulars                                   Amount

Earnings before interest and tax = 71325

Less: amount of interest = 0

Earnings before tax = $71325

Less : the amount of tax ( 34 percent) = 2425.05

Net income = $47074.5

The number of shares given = 32,800

The formula of calculating the earning per share is = Net income divided by the number of the shares of a company

Thus, EPS = $47074.5 divided by 32,800 = $1.44 (rounded oof)