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Ornaments, Inc., is an all-equity firm with a total market value of $597,000 and 26,200 shares of stock outstanding. Management believes the earnings before interest and taxes (EBIT) will be $84,900 if the economy is normal. If there is a recession, EBIT will be 20 percent lower, and if there is a boom, EBIT will be 30 percent higher. The tax rate is 34 percent. What is the EPS in a recession

User Sekar
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Answer:

The EPS in a recession is $1.71.

Step-by-step explanation:

Earnings per share (EPS) = Earnings Attributable to holders of Common Stocks ÷ Weighted Average Number of Common Stocks

Earnings Attributable to holders of Common Stocks = ($84,900 - ($84,900 × 0.34)) × 80 %

= $44,827.20

Weighted Average Number of Common Stocks = 26,200 shares

Earnings per share (EPS) = $44,827.20 ÷ 26,200 shares

= $1.71

User Haywood
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