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The Stockholders’ Equity section of the Balance Sheet of Carpenter Corporation on December 31, 2015, showed...

The Stockholders’ Equity section of the Balance Sheet of Carpenter Corporation on December 31, 2015, showed Cumulative Preferred 9% Stock, $45 par (1,303 shares authorized, 550 shares issued); Common Stock, $23 par (28,910 shares authorized, 14,910 shares issued); and Retained Earnings of $1,074. The Notes to the Financial Statements in the Annual Corporate Report for 2015 indicate that the market values of the stock are $40 per share (Cumulative Preferred) and $17 per share (Common). Forecasts in the Annual Report also indicate that investments in future growth in 2016 are expected to result in sustained increased profits. In consideration of these matters, the Board of Directors has secured approval from the Securities and Exchange Commission for a bond issuance. The Board of Directors has also decided to forego paying dividends in 2015, and to repurchase shares of the corporation’s common stock at par, with a view to reselling the stock when market rates rise with increased profitability. On January 2, 2016, $213,463 in 10 year, 7% bonds with a market interest rate of 9%, and interest payable semiannually, were issued for $188,430. On January 3, the corporation purchased 2,002 shares of its common stock at par. Profits soared during 2016, and on May 1, the corporation resold 1,517 shares of treasury stock, at $8 above par. On June 30, bond interest was paid. On December 31, the corporation showed an after tax Net Income of $53,800. On December 31, bond interest was paid; and dividends were declared and paid. Common shareholders received $2.33 per share. What is the Earnings per Share on December 31, 2016?

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Expert Solution

Calculation of Profit Available for Common Stock

Profit After Tax = $ 53,800.00
Less: Preferrence Dividend
(24,750*9%*2)		 = $    4,455.00
Profit Available for Common Stock = $ 49,345.00

Calculation of Weightage Average Number of Common Stock

Weight Average Number of Common Stock
Number Months Weight Product
Beginning Common Stock            14,190               12           1.00          14,190
Repurchase of Stock            (2,002)               12           1.00          (2,002)
Resale of Stock              1,517                 8           0.67            1,011
         13,199

Calculation of EPS

EPS = Earning Available for Common Stock / Weightage Number of Shares Outstanding

EPS = 49,345/13,199 = 3.74

Note: The profit after tax given in the question is assumed to be after Interest on Bond.


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