Question

LIELU Pricing X om orthwest Mississ. Registration Infor... The University of ... Pinterest. The wo Effect of Financing on Earnings per Share Domanico Co., which produces and sells biking equipment, is financed as follows: Bonds payable, 10% (issued at face amount) Preferred $2 stock, $20 par Common stock, $25 par Income tax is estimated at 40% of income. $1,800,000 1,800,000 1,800,000 Determine the earnings per share on common stock, assuming that the income before bond interest and income tax is (a) $702,000, (b) $882,000, and (c) $1,062,000. Enter answers in dollars and cents, rounding to two decimal places. a. Earnings per share on common stock b. Earnings per share on common stocks c. Earnings per share on common stock $ Check My Work Next > Email Instructor Save and Exit Submit Assignment for Grading

Answer 1

Interest Expense = Bonds Payable * Interest Rate
Interest Expense = $1,800,000 * 10%
Interest Expense = $180,000

Number of Preferred Stock = Preferred Stock / Par Value
Number of Preferred Stock = $1,800,000 / $20
Number of Preferred Stock = 90,000

Preferred Dividend = Number of Preferred Stock * Preferred Dividend per share
Preferred Dividend = 90,000 * $2
Preferred Dividend = $180,000

Number of Common Stock = Common Stock / Par Value
Number of Common Stock = $1,800,000 / $25
Number of Common Stock = 72,000

Income before interest and taxes Less: Interest expense Income before taxes Less: Income taxes (40%) Net income Less: Preferred dividend Income available to common stockholders Divided by: Number of common stock Earnings per share on common stock Case A 702,000 $ 180,000 $ 522,000 $ 208,800 $ 313,200 $ 180,000 $ 133,200 $ 72,000 1.85 $ Case B 882,000 $ 180,000 $ 702,000 $ 280,800 $ 421,200 $ 180,000 $ 241,200 $ 72,000 3.35 $ Case C 1,062,000 180,000 882,000 352,800 529,200 180,000 349,200 72,000 4.85