Baltimore Shipping Company has outstanding 500,000 shares of common stock, $5 million of 8% preferred stock, and $8 million of 10% bonds payable. Its income tax rate is 40%.
1. Assume the company has $6 million of income before interest and taxes. Compute (a) EPS, and (b) number of times bond interest has been earned.
2. Assume $3 million of income before interest and taxes, and make the same computations.
3. Comment on the relative changes of income before interest and taxes, EPS, and times interest earned.