On January 1, 2011, Farnsworth Company had 1,000,000 shares of common stock and 100,000 shares of $8 cumulative preferred stock issued and outstanding. A principal goal of Farnsworth's management is to maintain or increase EPS. On January 1, 2012, Farnsworth Company retired 50,000 shares of the preferred stock with excess cash and additional funds provided from the sale of a subsidiary. At the beginning of 2013, the company borrowed $5,000,000 at 10% and used the proceeds to retire 200,000 shares of common stock. Operating income, before interest and income taxes (income tax rate is 30%), is as follows:
2013 2012 2011
Operating income . . . . . . . . . . . . . . . . . . . . . . . . $6,500,000......$7,000,000....$7,500,000
Did Farnsworth Company maintain its EPS even though income declined? What was the impact of the preferred and common stock transactions on EPS?