Respuesta :
Answer:
a. Earnings per share on common stock $ 1.70 i.e., 1 Dollar and 70 cents
b. Earnings per share on common stock $ 3.20 i.e., 3 Dollars and 20 cents
c. Earnings per share on common stock $ 4.70 i.e., 4 Dollars and 70 cents
Calculation of Bond Interest:
As per the information given in the question we have
Bonds payable, 10 % (issued at face amount) = $ 2,000,000
This implies that rate of Bond Interest = 10 %
Total face value of the Bonds issued = $ 2,000,000
Thus the Bond Interest = Total face value of the Bonds issued * Rate of Bond Interest
= $ 2,000,000 * 10 % = $ 200,000
Thus the Bond Interest = $ 200,000
Calculation of Preferred stock Dividend :
As per the information given in the question we have
Total value Preferred Stock issued = $ 2,000,000
Par value of preferred stock = $ 20
Thus the Total No. of shares of preferred stock issued = $ 2,000,000 / $ 20
= $ 100,000
As per the information given in the question
Preferred stock dividend per share = $ 2
Total No. of shares of preferred stock issued = $ 100,000
Thus the total preferred stock dividend i.e., Preference Dividend = Preferred stock dividend per share * Total No. of shares of preferred stock issued
= $ 2 * 100,000
= $ 200,000
Thus the Preference Dividend = $ 200,000
Calculation of Number of shares of Common stock :
As per the information given in the question we have
Total value Common Stock issued = $ 2,000,000
Par value of Common stock = $ 25
Thus the Total No. of shares of Common stock issued = $ 2,000,000 / $ 25
= 80,000
No. of shares of Common stock = 80,000
Answer:
a) $1.25 per share
b) $2.75 per share
c) $4.25 per share
Explanation:
first we must determine bond interest = $2,000,000 x 10% = $200,000
I assume that there are not 2,000,000 preferred stocks since then the preferred stock dividend would be $4,000,000 per year which is much greater than any income given. Instead I guess that the total outstanding preferred stocks = $2,000,000 / $20 = 100,000 preferred stocks x $2 = $200,000 preferred stock dividends.
I will also assume that the same thing happened to common stocks = $2,000,000 / $25 = 80,000
earnings per share = (net income - preferred stock dividends) / outstanding common stocks
tax = 40%
a) EBIT = $700,000
net income = ($700,000 - $200,000 interests) x (1 - 40%) = $300,000
earnings per share = ($300,000 - $200,000) / 80,000 = $1.25 per share
b) EBIT = $900,000
net income = ($900,000 - $200,000 interests) x (1 - 40%) = $420,000
earnings per share = ($420,000 - $200,000) / 80,000 = $2.75 per share
c) EBIT = $1,100,000
net income = ($1,100,000 - $200,000 interests) x (1 - 40%) = $540,000
earnings per share = ($540,000 - $200,000) / 80,000 = $4.25 per share
