Question

Jupiter Corporation has 1.10 million shares outstanding and debt that leads to annual interest payments of $1.27 million. the corporate tax rate is 25%. calculate jupiter's earnings per share (EPS) if earnings before interest and taxes EBIT) is 3.81 million?

Answer 1

To calculate Jupiter Corporation's earnings per share (EPS), subtract the annual interest payments from the earnings before interest and taxes (EBIT) to get the earnings after interest and taxes (EAT). Finally, divide the EAT by the number of shares outstanding.

Step-by-step explanation:

To calculate the earnings per share (EPS), we need to subtract the annual interest payments from the earnings before interest and taxes (EBIT) to get the earnings after interest and taxes (EAT). Then we divide the EAT by the number of shares outstanding to get the EPS.

Given: 1.10 million shares outstanding, debt with annual interest payments of $1.27 million, and EBIT of $3.81 million.

1. Calculate the earnings after interest and taxes (EAT) by subtracting the annual interest payments from the EBIT: EAT = EBIT - Interest
2. Since the corporate tax rate is 25%, multiply the annual interest payments by (1 - tax rate) to get the after-tax interest: After-tax interest = Interest x (1 - Tax rate)
3. Subtract the after-tax interest from the EBIT to get the EAT: EAT = EBIT - After-tax interest
4. Divide the EAT by the number of shares outstanding to calculate the earnings per share (EPS): EPS = EAT / Shares outstanding

Plugging in the numbers:

• Interest = $1.27 million
• Tax rate = 25%
• EBIT = $3.81 million
• Shares outstanding = 1.10 million

Now we can calculate the EAT and EPS:

• After-tax interest = $1.27 million x (1 - 0.25) = $951,250
• EAT = $3.81 million - $951,250 = $2,858,750
• EPS = $2,858,750 / 1.10 million = $2.60 per share