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Drury Corporation needs to raise $1,700,000. The corporation plans on selling 110,000 shares of...

Question:

Drury Corporation needs to raise $1,700,000.

The corporation plans on selling 110,000 shares of $23 par value common stock. Drury Corporation currently has 140,000 shares of stock outstanding and a net income of $1,300,000.

The $1,700,000 from the stock sale is expected to generate an additional income of $400,000 before interest and taxes.

The income tax rate is 30%.

What are the earnings per share after the sale of 110,000 shares of stock?

(Round the final answer to the nearest cent.)

Earnings Per Share (EPS):

Earnings Per Share (EPS) is computed by dividing the net income available to common stockholders by the number of shares outstanding at the period-end.

Answer and Explanation:

The earnings per share after the sale of 110,000 shares of stock is $3.32.

Compute the EPS as follows:

Computation for EPS
Additional income before interest and taxes $400,000
Less: Income Tax ($400,000 x 30%) $(120,000)
Net Income after tax $280,000
Add: Old Net Income $1,300,000
Total Income Available to common stockholders (b) $1,580,000
Total number of outstanding shares (b) (140,000 + 110,000) 250,000
EPS (a/b) $6.32


Learn more about this topic:

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How to Calculate Earnings Per Share: Definition & Formula

from Introduction to Business: Homework Help Resource

Chapter 24 / Lesson 14
111K

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