Effect of financing on earnings per share
Kelton Co., which produces and sells skiing equipment, is financed as follows:
|
Bonds payable, 8% (issued at face amount) |
$20,000,000 |
|
Preferred $2 stock, $10 par |
20,000,000 |
|
Common stock, $25 par |
20,000,000 |
Income tax is estimated at 40% of income:
Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is (a) $10,000,000, (b) $12,000,000 and (c) $14,000,000.
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