Homework SourseMiller Co which produces and sells skiing equipment is finan
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.
Solution
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 |
