Hawi Inc. has net income of $200,000, average shares of common stock outstanding of 40,000, and preferred dividends for the period of $20,000.
What is Hawi’s earnings per share of common stock?
Sid Brey, the president of Hawi, believes that the computed EPS of the company is high. Comment.
Consider a firm with an EBIT of $866,000. The firm finances its assets with $2,660,000 debt (costing 8 percent and is all tax deductible) and 560,000 shares of stock selling at $5.00 per share. To reduce the firm’s risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 360,000 shares of stock. The firm’s tax rate is 21 percent. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $866,000.
Calculate the change in the firm’s EPS from this change in capital structure.
(Do not round intermediate calculations and round your final answers to 2 decimal places.)
Find EPS.
| NET INCOME | $182 MILLION |
| DIVIDENDS | 0 |
| WEIGHTED AVERAGE COMMON STOCK | $350 MILLION |
