Help please 4 On December 31, 2015, Dow Steel Corporation had 660,000 shares of
ID: 2574720 • Letter: H
Question
Help please 4
On December 31, 2015, Dow Steel Corporation had 660,000 shares of common stock and 36,000 shares of 10%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $460,000 and $75,000 to common and preferred shareholders, respectively, on December 15, 2016 On February 28, 2016, Dow sold 56,000 common shares. In keeping with its long-term share repurchase plan, 2,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2016, was $2,400,000. The income tax rate is 40%. Required Compute Dow's earnings per share for the year ended December 31, 2016. (Do not round intermediate calculations. Enter your answers in thousands.) Numerator / Denominator l = Earnings per shareExplanation / Answer
Earnings Per Share(EPS) is Net Income available per share for Equity Share holders.
Hence the formula is :
EPS = (Net Income after tax - Preferred dividends ) / Weigthed average number of Common shares outstanding
1. Calculation of Weighted average number of outstanding shares (denominator):
Company has 660,000 Common stocks outstanding as on Dec 31, 2015. Out of which 56,000 shares were retired on Feb 28 and another 2,000 were retired on July 1. Therefore 660,000-56,000-2,000 = 602,000 shares were availabe throughout the 12 months and the retired shares were available for part of the years. Considering this in mind, below is the calculation of Weighted average shares outstanding :
Common shares available throughout the year 602,000
56,000 Shares retired on Feb 28 ( in effect for 2 months) 9,333 (56,000/12x2)
2,000 shares retired on July 1 (in effect for 6 months) 1,000 (2,000/12x6)
Total Weighted average no. of shares 612,333
2. Net Income availabe for Common stock holders (Numerator):
A. Earnings before tax for 2016 2,400,000
B. Tax @ 40% 960,000 (2,400,000x40%)
C. Earnings after tax (A-B) 1,440,000
D. Preferred Dividend 36,000 (36,000x10x10%)
E. Net Income availabe for
Common Shareholders (D-E) 1,404,000
Assumed Face Value of Prefeered Shares is 10.
Interim divided paid on Common shares and Preferred shares is of no use in the calulations as that has already been paid and charged in the profits in the mid of the year.
3. Calculation of EPS:
Numerator(Net Income availabe for Common shareholders) = 1,404,000
Denominator (Weighted average no of Common shareholders) = 612,333
EPS (1,404,000/612,333) $2.2929 per share
Please ask if you have any doubts
Please give your feedback.
Thanks
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.