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Jefferson Industries had sales of $2,000,000 in 2019. Cost of goods sold was 70% of sales....

Jefferson Industries had sales of $2,000,000 in 2019. Cost of goods sold was 70% of sales. Selling & Admin. Expenses were 15% of sales. Depreciation was $25,000 and Interest expense was $10,000. The firm’s tax rate is 25%. (a) Compute earnings after taxes. (b) compute EPS, given there are 100,000 shares of stock outstanding – round to two decimal places.d

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Answer #1

(a) Calculation of earnings after taxes:

Earnings after taxes = (Sales - Cost of goods sold - Selling & administration expenses - Depreciation - Interest expense) * ( 1 - Tax rate)

Putting the values in the above formula, we get,

Earnings after taxes = ($2000000 - (70% * $2000000) - (15% * $2000000) - $25000 - $10000) * ( 1 - 25%)

Earnings after taxes = ($2000000 - $1400000 - $300000 - $25000 - $10000) * 75%

Earnings after taxes = $265000 * 75% = $198750

(b) Earnings per share = Earnings after taxes / Total number of shares outstanding

Earnings per share = $198750 / 100000

Earnings per share = $1.99

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