Miller Co., which produces and sells skiing equipment, is financed as follows: B
ID: 2449921 • Letter: M
Question
Miller Co., which produces and sells skiing equipment, is financed as follows: Bonds payable, 10% (issued at face amount) $2,300,000 Preferred $1 stock, $10 par 2,300,000 Common stock, $25 par 2,300,000
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) $897,000, (b) $1,127,000, and (c) $1,357,000.
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 $
Explanation / Answer
Bond Interest : = 2,300,000 * .10 =$230,000
Preferred dividend Rate = 1/10 = 10%
Preferred dividend = 2,300,000 *10 % =230,000
Number of common stock outstanding = 2,300,000 / 25 = 92000shares
A B C Income before interest and tax 897000 1127000 1357000 less:Interest 230000 230000 230000 Income before tax (a) 667000 897000 1127000 less:Tax (a*.40) 266800 358800 450800 Income after tax 400200 538200 676200 less:preferred dividend 230000 230000 230000 Earning available to common stock holders (X) 170200 308200 446200 Number of shares (Y) 92000 92000 92000 EPS = X/Y 1.85 3.35 4.85