Effect of Financing on Earnings per Share Miller Co., which produces and sells s

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) $2,250,000

Preferred $2 stock, $20 par 2,250,000

Common stock, $25 par 2,250,000

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) $945,000, (b) $1,170,000, and (c) $1,395,000. 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

Statement showing computations Particulars a) b) c) EBIT          945,000.00                 1,170,000.00      1,395,000.00 Less Interest on Bonds= 2,250,000*10%          225,000.00                     225,000.00          225,000.00 Earnings before tax = EBIT-Intt          720,000.00                     945,000.00      1,170,000.00 Tax @40%          288,000.00                     378,000.00          468,000.00 Earnings after Tax          432,000.00                     567,000.00          702,000.00 Less Preference Dividend = 2250,000/20*2          225,000.00                     225,000.00          225,000.00 Earning for Equity S/H          207,000.00                     342,000.00          477,000.00 No of shares of common stock =2250,000/25               90,000.00                       90,000.00            90,000.00 Earnings per share of common stock                       2.30                                  3.80                       5.30

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