Question

Effect of Financing on Earnings per Share Miller Co., which produces and sells skiing equipment, is financed as follows: Bonds payable, 10% (issued at face amount) $1,250,000 Preferred $1 stock, $10 par 1,250,000 Common stock, $25 par 1,250,000 Income tax is estimated at 40% of income. Determine the earnings per share on common stock, assuming that the income before bond interest and income tax is (a) $400,000, (b) $525,000, and (c) $650,000. Enter answers in dollars and cents, rounding to the nearest cent. a. Earnings per share on common stock $ b. Earnings per share on common stock $ c. Earnings per share on common stock $

Answer 1

	a	b	c
earnings before bond interest and income tax	400,000	525,000	650,000
less:bond interest @10%	(125,000)	(125,000)	(125,000)
earnings before tax	275,000	400,000	525,000
less: tax @40%	110,000	160,000	210,000
net income	165,000	240,000	315,000
less: preferred dividend	(125,000)	(125,000)	(125,000)
earnings available to common stock holders	$40,000	$115,000	$190,000
number of common stock (1,250,000/25)	50,000	50,000	50,000
EPS (earnings available to common stockholders/ number of common stock )	0.80	2.30	3.80