Question -

1. Miller Co., which produces and sells skiing equipment, is financed as follows: Bonds payable, 10% (issued at face amount)$10,000,000, Preferred 10% stock, $10 par 10,000,000, Common stock, $25 par, 10,000,000.

Income tax is estimated at 40% of income.

Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is (a)$3,000,000, (b)4,000,000, and (c)$5,000,000.

2. Based on the data above, discuss factors other than earnings per share that should be considered in evaluating such financing plans.