Khandker Motors finances 40% of its total capital with debt. The cost of debt is 11%. The firm is in the 37% tax bracket and earned an operating profit of $2.5 million dollars. If the Khandker's total capital amounts to $22 million and its book value per share is $20, what is the firm's earnings per share?
Total capital = 22 million
Equity capital = (1-40%)*22 million = 13.2 million
Debt capital = 0.4*22=8.8 ...
The solution calculates Khandker Motors' earnings per share.