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Everdeen Mining, Inc., ended 2015 with a net profit before taxes of $436,000. The company is subject to a 40% tax rate and must pay $64,000 in preferred stock dividends before distributing any earnings on the 170,000 shares of common stock currently outstanding. a. Calculate Everdeen’s 2015 earnings per share (EPS). b. If the firm paid common stock dividends of $0.80 per share, how many dollars would go to retained earnings?

Respuesta :

Nyctalus

Answer: EPS =$1.16

Retained earnings = $61,000

Explanation: A. As we know that,

[tex]= EPS\:=\:\frac{Net\:income-preferred\:dividends}{average\:shares\:outstanding}[/tex]

and,

Net income = EBIT(1-Tax rate)

                  = $436,000(1-40%)

                  = $261,600

now,

[tex]= EPS\:=\:\frac{\$261,600-\$64,000}{170,000shares}[/tex]

so,

EPS = $1.16

.

B. computing retained earnings :-

retained earnings = (net income-preferred dividends)-     (dividends)*(common share)

                              = (261,600-64,000)- (0.80)(170,000)

                              = $61,000

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