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|
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from Introduction to Business: Homework Help ResourceChapter 24 / Lesson 14