EPS calculations Southland Industries has $60,000 of 6% (annual interest) bonds outstanding, 1,500 shares of preferred...

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:

A.)$24,600

B.)$30,600

C.)$35,000

Part A, EPS = $.375

Expert Solution

		A)	B)	C)
Level of EBIT	$ 24,600.00	$ 30,600.00	$ 35,000.00
Interest Expense	$ 3,600.00	$ 3,600.00	$ 3,600.00
Earning before tax	$ 21,000.00	$ 27,000.00	$ 31,400.00
Tax Expense	$ 8,400.00	$ 10,800.00	$ 12,560.00
Net Income	$ 12,600.00	$ 16,200.00	$ 18,840.00
Preferred dividends	$ 7,500	$ 7,500	$ 7,500
Earning for common stock	$ 5,100.00	$ 8,700.00	$ 11,340.00
Shares of common stock outstanding	4,000	4,000	4,000

EPS		$ 1.28	$ 2.18	$ 2.84

Working:

Annual interest	=	Bonds	*	Interest rate
	=	$ 60,000.00	*	6%
	=	$ 3,600.00

Preferred stock dividend	=	Number of shares	*	Dividend per share
	=	1,500	*	$ 5.00
	=	$ 7,500

jeff jeffy answered 1 year ago

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EPS calculations Southland Industries has $60,000 of 6% (annual interest) bonds outstanding, 1,500 shares of preferred...

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