   Chapter 8, Problem 8.1E

Chapter
Section
Textbook Problem

Effect of financing on earnings per share BSF Co.. which produces and sells skiing equipment. is financed as follows: Income lax 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) $1,000,000. (b)$3,000,000. and (c) $4,500,000. To determine Concept Introduction: Basic Earnings per share: The Basic Earnings per share is the amount of net income earned by each common share outstanding. The Earnings per share calculated by with help of following formula: Basic Earnings per share=Net Income - Preferred DividendWeighted Average Common Shares Outstanding Net Income available to common stockholder = Net income Preferred Dividend To Calculate: The earnings per share for each income level Explanation The earnings per share for each income level are as follows:  a b c Income before interest and tax (A)$ 1,000,000 $3,000,000$ 4,500,000 Interest on Bonds (B) (7500000*8%) $600,000$ 600,000 $600,000 Income before tax (C) = (A-B)$ 400,000 $2,400,000$ 3,900,000

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