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Effect of financing on earnings per share. Miller Co. which produces and sells skiiibg equipment, is...

Effect of financing on earnings per share. Miller Co. which produces and sells skiiibg equipment, is financed as follows.
Bonds payable 10% face amount. 1,550,000
Preferred $2 stock, $20 par. 1,550,000
Common stock,$25 par. 1,550,000
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) 558,000 (b) 713,000(c)868,000
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Answer #1
a b c
Earnings before interest and income tax 558000 713000 868000
Less: Interest on bonds 155000 155000 155000
Income before income tax 403000 558000 713000
Less: Income tax @ 40% 161200 223200 285200
Net income 241800 334800 427800
Dividends on preferred stock 155000 155000 155000
Earnings for common stockholders 86800 179800 272800
Shares of common stock outstanding 62000 62000 62000
Earnings per share on common stock 1.40 2.90 4.40
Workings:
Interest on bonds = 1550000*10% = $155000
Dividends on preferred stock = (1550000/20)*2 = 155000
Shares of common stock outstanding = 1550000/25 = 62000
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