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23 August, 18:58

Ornaments, Inc., is an all-equity firm with a total market value of $663,000 and 32,800 shares of stock outstanding. Management believes the earnings before interest and taxes (EBIT) will be $95,100 if the economy is normal. If there is a recession, EBIT will be 25 percent lower, and if there is a boom, EBIT will be 35 percent higher. The tax rate is 34 percent. What is the EPS in a recession

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  1. 23 August, 19:07
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    EPS = $1.44 (after rounding off)

    Explanation:

    The calculation of Earnings per share is as follows:

    Particulars Amount

    Earnings before interest and tax = 71325

    Less: amount of interest = 0

    Earnings before tax = $71325

    Less : the amount of tax (34 percent) = 2425.05

    Net income = $47074.5

    The number of shares given = 32,800

    The formula of calculating the earning per share is = Net income divided by the number of the shares of a company

    Thus, EPS = $47074.5 divided by 32,800 = $1.44 (rounded oof)
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