Question

Effect of Financing on Earnings per Share Henriksen Co., which produces and sells biking equipment, is financed as follows: $6,000,000 3,000,000 Bonds payable, 5% (issued at face amount) Preferred $2.00 stock, $100 par Common stock, $25 par Income tax is estimated at 40% of income. 5,000,000 Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is (a) $900,000, (b) $1,100,000, and (c) $1,500,000. Enter answers in dollars and cents, rounding to two decimal places. a. Earnings per share on common stock $ 2.2 X b. Earnings per share on common stock $ c. Earnings per share on common stock $

Answer 1

a) Earning per share of coomon stock b) Earning per share of coomon stock c) Earning per share of coomon stock $1.50 $2.10 $3.30 Workings: a с Income before interest on bonds and income tax Less: Interest on bonds ($6.000.000 * 5%) Income before income tax Less: Income tax (@ 40%) Net Income Less: Dividends on preferred stock ($3,000,000 / $100) * $2.00 Income available on common stock (A) No. of common stock outstanding (B) ($5,000,000 / $25) Earning per share of coomon stock (A/B) b $900,000 $1,100,000 $1,500,000 $300.000 $300,000 $300,000 $600,000 $800,000 $1,200,000 $240.000 $320,000 $480.000 $360,000 $480.000 $720.000 $60.000 $60,000 $60.000 $300.000 $420,000 $660.000 200,000 200.000 200.000 $1.50 $2.10 $3.30