Answer:
$1.53
Explanation:
Calculation to determine the difference in earnings per share (EPS) for the capital structure
Debt = 0.25 × Total assets = 0.25 × $500,000
Debt= $125,000
Equity = (1 − 0.25) × Total assets = 0.75 × $500,000
Equity = $375,000
Net income (NIRuby) = [EBIT - (Cost of debt × Total debt)] × (1 - Tax rate)
Net income (NIRuby) = [$80,000 - (0.10 × $125,000)] × (1 - 0.3)
Net income (NIRuby= $47,250
EPSRuby = Net income/Number of shares outstanding
EPSRuby = $47,250/22,000 shares
EPSRuby= $2.15 per share
Net income (NIEmerald) = [EBIT - (Cost of debt × Total debt)] × (1 - Tax rate)
Net income (NIEmerald) = [$32,000 - (0.10 × $125,000)] × (1 - 0.3)
Net income (NIEmerald) = $13,650
EPSEmerald = Net income/Number of shares outstanding
EPSEmerald = $13,650/22,000 shares
EPSEmerald= $0.62 per share
Difference between the earnings per share = $2.15 - $0.62
Difference between the earnings per share= $1.53
Therefore the difference in earnings per share (EPS) for the capital structure is $1.53
