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juin [17]
2 years ago
11

Consider two companies in a world with no taxes that are alike except in borrowing choices. Company 1 has no debt​ financing, an

d Company 2 uses debt financing. The EBIT for both companies is​ $1,000. Company 1 has 500 shares outstanding and pays no interest. Company 2 has 300 shares outstanding and pays​ $250 in interest. What is the EPS for each​ company?
Business
1 answer:
Alekssandra [29.7K]2 years ago
6 0

Answer:

Company 1 = $2 per share

Company 2 = $2.50 per share

Explanation:

Given that,

EBIT for both companies = $1,000

Number of shares outstanding for company 1 = 500

Number of shares outstanding for company 2 = 300

Interest paid by company 2 = $250

EPS for company 1:

= (Total income - Preferred dividend) ÷ Shares outstanding

= ($1,000 - $0) ÷ 500

= $2 per share

EPS for company 2:

= (Total income - Preferred dividend) ÷ Shares outstanding

= ($1,000 - $250) ÷ 300

= $750 ÷ 300

= $2.50 per share

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In the given question GP ratio will be 53.4%

Here Net sales= 296000 $

Cost of goods sold= 138000 $

average inventory= 50000 $

Gross profit= Net sales- Cost of goods sold

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Formula for calculating Gross profit ratio is:

Gross profit/ Net sales *100

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Gross profit ratio is a financial ratio which measures the performance and efficiency of a business by dividing its gross profit  by the total net sales. The gross profit ratio can also be expressed in  the form of percentage by multiplying the result by 100.

To know more about GP ratio here:

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