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If a company reports operating profit of $70 million, earns net income of $50 million in year 8, has 20 million shares of common stock outstanding, pays a dividend of $1. 50 per share, and has annual interest costs of $15 million--all in year 8, then

Sagot :

The company's EPS for Year 8 would be $2.50 and its retained earnings for Year 8 would be $20 million

How do we calculate EPS and retained earnings?

Note: The options for the questions are as follows:

A. the company's total earnings for Year 8 would be $10 million (net income of $50 million less interest costs of $10 million less dividend payments of $30 million = $10 million).

B. the company's EPS for Year 8 would be $2.50 and its retained earnings for Year 8 would be $20 million (net income of $50 million less dividend payments of $30 million).

C. the company's credit rating would be no less than an A because operating profit is seven times higher than annual interest costs.

D. the company's EPS for Year 8 would be $5.50 and its retained earnings for Year 8 would be $10million (net income of $50 million less interest costs of $10 million less dividend payments of $30million).

E. the company's EPS for Year 8 would be $1.50 (operating profit of $70 million less interest costs of$10 million, less dividend payments of $30 million= $30 million divided by 20 million shares).

The question can now be answered as follows:

From the question, we can calculate the following:

EPS = Net income / Number of shares of common stock outstanding = $50 million / 20 million = $2.50

Dividend payments = Number of shares of common stock outstanding * Dividend per share = 20 million * $1. 50 = $30 million

Retained earnings = Net income - Dividend payments = $50 million - $30 million = $20million

Therefore, the correct option is B. the company's EPS for Year 8 would be $2.50 and its retained earnings for Year 8 would be $20 million (net income of $50 million less dividend payments of $30 million).

Learn more about EPS here: https://brainly.com/question/19671991.

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