Great Lake Corp. currently has 20,000 shares of common stock outstanding. The company plans to build a new distribution center in Northern Ohio and needs to raise another $200,000. The company decides to issue total of $200,000 preferred stocks with 5% preferred stock dividend. If this option can help to boost the EBIT to $1,000,000, and tax rate of 50%, determine the earnings per share for this option.
Calculation of Earning per share: | |
Particulars | Amount |
EBIT | 10,00,000 |
Less: Interest | - |
EBT (EBIT-Interest) | 10,00,000 |
Less: Tax | 5,00,000 |
EAT (EBT-Tax) | 5,00,000 |
Less: Preference dividend (200000*0.05) | 10,000 |
Earning after preference dividend | 4,90,000 |
Number of shares | 20,000 |
Earning per share(490000/20000) | 24.5 |
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