Question

P13–11 EPS calculations Southland Industries has $60,000 of 6% (annual interest) bonds outstanding, 1,500 shares of preferred stock paying an annual dividend of $5 per share, and 4,000 shares of common stock outstanding. Assuming that the firm has a 40% tax rate, compute earnings per share (EPS) for the following levels of EBIT: $24,600

Answer 1

Answer:

$1.28

Explanation:

The computation of the earning per share is shown below:

As we know that

Earning per share = Net income ÷ Number of shares outstanding

where,

Net income is

Earning before interest and taxes      $24,600

Less: Interest

($60,000 × 6%)                                      - $3,600

Income before tax                                  $21,000

Less: tax for 40%                                    - $8,400

Earning after tax                                     $12,600

Less: Preference dividend

(1,500 shares × $5)                                  -$7,500

Income available                                       $5,100

So the earning per share is

= $5,100 ÷ $4,000

= $1.28