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# EPS using tax rate and expenses

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Use the information for Sports Baseballs, Inc.

Sports Baseballs, Inc. is a corporation that manufacturers and sells baseballs across several states in the Southeast. It had sales of \$2.7 million during the last year. Expenses were as follows:

Cost of goods sold............................... \$1.2 million
Marketing and selling expenses............... \$175,000
Depreciation........................................ \$500,000
Interest expense.................................. \$200,000
Dividends paid..................................... \$150,000

Suppose that Sports Baseball has 30,000 shares of stock. Assume a tax rate of 30%. What is the EPS figure?

#### Solution Preview

EPS = Net Income/Number of shares

Net Income is
Total sales = 2,700,000
Total expense
Cost of goods sold............................... \$1.2 million ...

#### Solution Summary

The solution explains how to calculate the earnings per share using a very brief calculation.

\$2.19

## A Discussion On EBIT-EPS Calculations

Moon and Chittenden are considering a new Internet venture to sell used textbooks. The project requires \$300,000 in financing. Two alternatives have been proposed.

Plan 1 (Common equity financing). Sell 30, 000 shares of stock at a net price of \$10 per share.

Plan 2 (Debt equity financing). Sell a combination of 15,000 shares of stock at a net price of \$10 per share and \$150,000 of long-term debt at a pretax interest rate of 12 percent.

Assume the corporate tax rate is 40 percent.

a. Compute the indifference level of EBIT between these two alternatives

b. If the firm's EBIT next year has an expected value of \$25,000, which plan would you recommend assuming maximizing EPS is a valid objective?

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