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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

Learn more about this topic:

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How to Calculate Earnings Per Share: Definition & Formula

from Introduction to Business: Homework Help Resource

Chapter 24 / Lesson 14
109K

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