Question

ornaments, incorporated, is an all-equity firm with a total market value of $619,000 and 28,400 shares of stock outstanding. management believes the earnings before interest and taxes (ebit) will be $88,300 if the economy is normal. if there is a recession, ebit will be 30 percent lower, and if there is a boom, ebit will be 40 percent higher. the tax rate is 21 percent. what is the eps in a recession?

Answer 1

Earnings per share (EPS) of the share at recession will be equal to 1.1405, considering all given factors.

Given information:

Market value = $619,000

No. of shares = $28,400

EBIT = $88,300

EPS during recession = (EBIT normal * (1 - Reduction in recession) * (1 - Tax rate)/shares

EPS = ($88300 * (1 - 0.3)) * (1 - 0.21)/28,400

EPS = $61,810 * 0.8 / 28,400

EPS = $ 61,810*0.00002816

EPS = 1.7405

The profit of a corporation is divided by the number of existing shares of its stock to arrive at earnings per share (EPS). The resulting figure is used to gauge a company's profitability. It is typical for companies to publish EPS that has been adjusted for unusual expenses and possible stock dilution.

Earnings per share also referred to as profits or earnings, is calculated as net income divided by the number of outstanding shares. The ratio and denominator are modified in a more complex computation to account for shares that might be produced by options, convertible bonds, or options.

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