A firm has 1,000 common shares valued at 30 each outstanding. It has also issued 500 preferred shares of face value 100 and a coupon of 5% and a debt of
50,000 with a coupon rate of 6%. The firm's net income after taxes is 14,300. Then, the EPS reported by the firm is ________.
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A. B. C. D.B
For a simple capital structure, Basic EPS = (Net Income - Preferred dividends)/weighted # of common shares Therefore, Basic EPS = (14,300 -
500*100*5%)/1,000 = 11.8.
To calculate the earnings per share (EPS) reported by the firm, we need to determine the total earnings available to common shareholders. Here's how we can calculate it step by step:
Calculate the earnings available to preferred shareholders: Preferred dividends = Preferred shares × Face value × Coupon rate Preferred dividends = 500 × $100 × 5% = $2,500
Calculate the earnings available to common shareholders: Earnings available to common shareholders = Net income − Preferred dividends Earnings available to common shareholders = $14,300 − $2,500 = $11,800
Calculate the weighted average number of common shares: Weighted average number of common shares = Common shares outstanding
Since the question states that the firm has 1,000 common shares outstanding, we use this number directly.
Calculate the EPS: EPS = Earnings available to common shareholders / Weighted average number of common shares EPS = $11,800 / 1,000 = $11.80
Therefore, the EPS reported by the firm is $11.80. The correct answer choice is B.