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

Question

Effect of Financing on Earnings per Share Domanico Co., which produces and sells biking equipment, is financed as follows: Bonds payable, 10% (issued at face amount) $1,750,000 Preferred $1 stock, $10 par 1,750,000 Common stock, $25 par 1,750,000 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) $630,000, (b) $805,000, and (c) $980,000. 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

Solution:

Computation of Earning per share - Domanico Co Particulars Alternative A Alternative B Alternative C Income before interest and tax $630,000.00 $805,000.00 $980,000.00 Less: Bond interest expense $175,000.00 $175,000.00 $175,000.00 Income before taxes $455,000.00 $630,000.00 $805,000.00 Income tax (40%) $182,000.00 $252,000.00 $322,000.00 Income after taxes $273,000.00 $378,000.00 $483,000.00 Preference dividend $175,000.00 $175,000.00 $175,000.00 Earning for common stockholders $98,000.00 $203,000.00 $308,000.00 Nos of shares outstanding 70000 70000 70000 Earning per share (EPS) $1.40 $2.90 $4.40

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