Question
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BSF Co., which produces and sells skiing equipment, is financed as follows: Bonds payable, 10% (issued...
BSF Co., which produces and sells skiing equipment, is financed as follows: Bonds payable, 10% (issued at face amount) $350,000 Preferred 1% stock, $10 par 350,000 Common stock, $25 par 350,000
Income tax is estimated at 60% of income.
Round your answers to the nearest cent.
a. Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is $105,000. $ per share
b. Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is $140,000. $ per share
c. Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is $175,000. $ per share
Solutions
Expert Solution
| EPS | |
| a | $1.75 |
| b | $2.75 |
| c | $3.75 |
Working:
| a. | |
| Income before bond interest | 105000 |
| Bond interest (10% of 350,000) | 35000 |
| Income before taxes | 70000 |
| Income Tax (60%) | 42000 |
| Net Income | 28000 |
| Preference dividend(1% of 350,000) | 3500 |
| Income available for connon stockholders | 24500 |
| Number of commonstock shares (350,000/25) | 14000 |
| Earnings per share of common stock | 1.75 |
| b. | |
| Income before bond interest | 140000 |
| Bond interest (10% of 350,000) | 35000 |
| Income before taxes | 105000 |
| Income Tax (60%) | 63000 |
| Net Income | 42000 |
| Preference dividend(1% of 350,000) | 3500 |
| Income available for connon stockholders | 38500 |
| Number of commonstock shares (350,000/25) | 14000 |
| Earnings per share of common stock | 2.75 |
| c. | |
| Income before bond interest | 175000 |
| Bond interest (10% of 350,000) | 35000 |
| Income before taxes | 140000 |
| Income Tax (60%) | 84000 |
| Net Income | 56000 |
| Preference dividend(1% of 350,000) | 3500 |
| Income available for connon stockholders | 52500 |
| Number of commonstock shares (350,000/25) | 14000 |
| Earnings per share of common stock | 3.75 |
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