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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

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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

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