Question

The Marfa Mining Company has the following capital structure: Bonds (8.5%) $90 mil Common Stock (2.50 par) $80 mil Retained Earnings $45 mil The firm has EBIT of $120 million and a tax rate of 30 percent. What is the ROE and EPS?

Answer 1

	EBIT=	120
Less	Interset	7.65
	90*8.5%
	EBT	112.35
Less	Tax @ 30%	33.705
	Net income	78.645
	Total equity = (80+45)	125
	Computation of ROE = Net income / Total equity	62.92%
	ROE =
	Number of share =	32
	80/2.5
	EPS = net income/Number of share	$                  2.46