Miller Co., which produces and sells skiing equipment, is financed as follows: I
ID: 2380145 • Letter: M
Question
Miller Co., which produces and sells skiing equipment, is financed as follows:
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) $637,000, (b) $767,000, and (c) $897,000.
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 $
Bonds payable, 10% (issued at face amount) $1,300,000 Preferred $1 stock, $10 par 1,300,000 Common stock, $25 par 1,300,000Explanation / Answer
(a) $637,000
EBIT = 637,000
interest = 1,300,000*10% =130000
Net income = (637,000 -130000)*(1-40%) =$304000
Number of shares = 1,300,000/25 = 52000
Earnings per share on common stock = 304000/52000 =$5.85
(b) $767,000
Net income = (767,000 -130000)*(1-40%) =$382200
Earnings per share on common stock = 382200/52000 =$7.35
c) $897,000
Net income = (897,000 -130000)*(1-40%) =$460200
Earnings per share on common stock = 460200/52000 =8.85