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Question
Two companies are financed as follows:
| X Co. | Y Co. | |
| Bonds payable, 9% issued at face | $5,000,000 | $3,000,000 |
| Common stock, $25 par | 3,000,000 | 3,000,000 |
Income tax is estimated at 40% of income for both companies.
Determine for each company the earnings per share of common stock, assuming that the income before bond interest and income taxes is $2,280,000 each.
Answer
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