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:

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) $888,000, (b) $1,128,000, and (c) $1,368,000.

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) $2,400,000 Preferred $1 stock, $10 par 2,400,000 Common stock, $25 par 2,400,000

Explanation / Answer

Earnings per share = Net income - preferred dividends / weighed average common shares outstanding

a. b. c.

EBIT 888000 1128000 1368000

interest (240000) (240000) (240000)

EBT 648000 888000 1128000

Tax (259200) (355200) (451200)

EAT 388800 532800 676800

Shares 96000 96000 96000

EPS 4.05 5.55 7.05

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