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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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