calculate of EPS and retained earning:
year ended2009 with a net profit before taxes of $218000. the company is subject to a 40% tax rate and must pay $32000 in preferred stock dividend before distributing any earning on the 85000 share of common stock currently outstanding.
1) calculate 2009 earning per share
2) if the firm paid common stock dividend of $0.80 per share, how many dollars would go to retained earning?
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To calculate the earnings per share (EPS) for the year 2009, we need to consider the net profit before taxes, tax rate, and preferred stock dividend.
1) Calculate 2009 earnings per share:
Step 1: Calculate the net profit after taxes.
Net Profit after Taxes = Net Profit before taxes - Tax Expense
Tax Expense = Net Profit before taxes * Tax Rate
Given:
Net Profit before taxes = $218,000
Tax Rate = 40%
Tax Expense = $218,000 * 0.40
Tax Expense = $87,200
Net Profit after Taxes = $218,000 - $87,200
Net Profit after Taxes = $130,800
Step 2: Calculate the earnings available for common shareholders.
Earnings available for Common Shareholders = Net Profit after Taxes - Preferred Stock Dividend
Given:
Preferred Stock Dividend = $32,000
Earnings available for Common Shareholders = $130,800 - $32,000
Earnings available for Common Shareholders = $98,800
Step 3: Calculate the earnings per share (EPS).
EPS = Earnings available for Common Shareholders / Number of Common Shares Outstanding
Given:
Number of Common Shares Outstanding = 85,000
EPS = $98,800 / 85,000
EPS = $1.16
Therefore, the earnings per share (EPS) for the year 2009 is $1.16.
2) Calculate the retained earnings if the firm paid a common stock dividend of $0.80 per share:
Retained Earnings = Earnings available for Common Shareholders - (Common Stock Dividend per share * Number of Common Shares Outstanding)
Given:
Common Stock Dividend per share = $0.80
Number of Common Shares Outstanding = 85,000
Retained Earnings = $98,800 - ($0.80 * 85,000)
Retained Earnings = $98,800 - $68,000
Retained Earnings = $30,800
Therefore, if the firm paid a common stock dividend of $0.80 per share, $30,800 would go to retained earnings.