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Great Lake Corp. currently has 20,000 shares of common stock outstanding. The company plans to build...

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.

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Answer #2
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
answered by: anonymous
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