# Determination of the firm's earnings per share (EPS) assuming a marginal tax rate of 25%: Net...

## Question:

Determination of the firm's earnings per share (EPS) assuming a marginal tax rate of 25%:

Net Sales $100,000 Cost of goods sold 60,000 Gross profits on sales 40,000 Selling and administrative expenses 15,000 Operating income 25,000 Interest expense 5,000 Interest earned 2,400 Earnings before tax . Taxes Earnings available to stockholders$ _____

Number of shares outstanding 10,000

Earnings per share $_____ a.$1.68

b. $2.24 c.$1.28

d. None of the above, that is, neither a,b, or c

## Earnings Per Share:

The earnings per share are computed by dividing the earnings available to equity shareholders with the number of common shares outstanding at the end of the period where earnings available to equity shareholders refers to the earnings after meeting the outside obligations like interest expense and preference dividends. The EPS indicates the per-share earnings realized from the investment of the amount raised by issued a single share.

## Answer and Explanation:

Correct answer: Option a) $1.68 Explanation: The firm's earnings per share are computed below:  Amount Net Sales$100,000 Cost of goods sold $60,000 Gross profits on sales$40,000 Selling and administrative expenses $15,000 Operating income$25,000 Interest expense $5,000 Interest earned$ 2,400 Earnings before tax $22,400 Taxes @25%$5,600 Earnings available to stockholders (A) $16,800 Number of shares outstanding (B) 10,000 Earnings per share (A/B)$1.68