YOLO Ltd has $9.16 million of debt in its current capital structure at an annual interest rate of 6.96% and 1.7 million ordinary shares on issue with a market value of $15.24 million. The firm’s tax rate is 30%. If EBIT is expected to be $6.31 million calculate the firm’s earnings per share (report your answer to two decimal places)?
Question
YOLO Ltd has 15.24 million. The firm’s tax rate is 30%. If EBIT is expected to be $6.31 million calculate the firm’s earnings per share (report your answer to two decimal places)?
Solution
To calculate the firm's earnings per share (EPS), we need to follow these steps:
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Calculate the interest expense: This is the cost of the debt. It is calculated by multiplying the total debt by the interest rate. In this case, it would be 0.637 million.
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Calculate the Earnings Before Tax (EBT): This is calculated by subtracting the interest expense from the Earnings Before Interest and Tax (EBIT). In this case, it would be 0.637 million = $5.673 million.
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Calculate the Net Income: This is calculated by subtracting the tax from the EBT. The tax is calculated by multiplying the EBT by the tax rate. In this case, it would be 1.702 million. So, the Net Income would be 1.702 million = $3.971 million.
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Finally, calculate the EPS: This is calculated by dividing the Net Income by the number of shares. In this case, it would be 2.34 per share.
So, the firm's earnings per share is $2.34.
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