Kelton Co., which produces and sells skiing equipment, is financed as follows: B
ID: 2387475 • Letter: K
Question
Kelton Co., which produces and sells skiing equipment, is financed as follows:Bonds payable, 8% (issued at face amount)....20,000,000
preferred $2 stock, $10 par....20,000,000
common stock, $25 par........20,000,000
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) $10,000,000, (b) $12,000,000, and (c) $14,000,000.
Enter answers in dollars and cents, rounding to the nearest whole cent.
a. Earnings per share on common stock $
b. Earnings per share on common stock $
c. Earnings per share on common stock $
Particularly, I'm not sure how to determine the number of outstanding shares
Explanation / Answer
Since you raise 20,000,000 at $25 par for common stock, with no indication that there is capital paid in excess, no of shares outstanding for common stock: 20,000,000/25 = 800,000 a. EBIT = 10,000,000 Interest = 0.008 * 20,000,000 = 160,000 EBT = 9,840,000 Net Income = 0.6 * EBT = 5,904,000 EPS = 5,904,000/800,000 = 7,38 Basically the same thing for b & c ! Hope that helps! :)
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