Question

Miller Co., which produces and sells skiing equipment, is financed as follows:
Bonds payable, 10% (issued at face amount)$10,000,000,
Preferred 10% stock, $10 par 10,000,000,
Common stock, $25 par, 10,000,000.
Income tax is estimated at 40% of income.
Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is (a)$3,000,000, (b)4,000,000, and (c)$5,000,000.

Answer 1

Calculate earning per share :

	Situation a	Situation b	Situation c
income before bond interest and income tax	3000000	4000000	5000000
Less: Interest (10000000*10%)	(1000000)	(1000000)	(1000000)
Income before tax	2000000	3000000	4000000
Less: Income tax	(800000)	(1200000)	(1600000)
Net income	1200000	1800000	2400000
Less: Preferred dividend (10000000*10%)	(1000000)	(1000000)	(1000000)
Earning for common stock	200000	800000	1400000
Share outstanding (10000000/25)	400000	400000	400000
EPS	0.50	2.00	3.5