Answer:
$10.00
Explanation:
Earning per share is the ratio of net Income of the business per outstanding share of the business after deducting the preferred dividend from net earning. It shows how much each stockholder earn against their each share in a specific period.
Earning Per share ( EPS ) of Firm A = $7.50 per share
Number of outstanding share can be calculated as follow
EPS = Net Income / Outstanding Numbers of share
Outstanding Numbers of shares = Net Income / EPS
Outstanding Numbers of shares = ($1,000,000 - $250,000) / $7.5 per share = 100,000 shares
Firm B
As Tax will be ignored, interest expense is also same as the Firm A and numbers of share is also sames.
Operating Income = $2.0 million = $2,000,000
Less: Interest expense $250,000
Net Income $175,000
EPS = $175,000 / 100,000 share = $17.5 per share
Difference = $17.5 - $7.5 = $10 per share
