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Summer Tan, Inc., is an all-equity firm with a total market value of $465,000 and 32,900 shares of stock outstanding. Management believes the earnings before interest and taxes (EBIT) will be $73,800 if the economy is normal. If there is a recession, EBIT will be 10 percent lower, and if there is a boom, EBIT will be 20 percent higher. The tax rate is 34 percent. What is the EPS in a boom

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Answer:

$1.78 per share

Explanation:

The computation of the earning per share in case of the boom is shown below:

In case of normal, the EBIT is $73,800

Since the EBIT is increase by  20%

So New EBIT is

= $73,800 × 120%

= $88,560

And, the net income is

= EBIT × (1 - tax rate)

= $88,560 × (1 - 0.34)

= $58,449.60

Now EPS is

= Net income ÷ outstanding shares

= $58,449.50 ÷ 32,900 shares

= $1.78 per share

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