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Khandker Motors Finances

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?

a.
$0.85
b.
$0.88
c.
$1.43
d.
$1.46

Solution Preview

Total capital = 22 million
Equity capital = (1-40%)*22 million = 13.2 million
Debt capital = 0.4*22=8.8 ...

Solution Summary

The solution calculates Khandker Motors' earnings per share.

$2.19