The Stockholders€™ Equity section of the balance sheet for Lahey Construction Company at the end of 2014 is as follows:
9%, $10 par, cumulative preferred stock, 500,000 shares
authorized, 200,000 shares issued and outstanding ......................$ 2,000,000
Additional paid-in capital on preferred ...............................................7,500,000
Common stock, $1 par, 2,500,000 shares authorized,
1,500,000 shares issued and outstanding ..........................................1,500,000
Additional paid-in capital on common ..............................................21,000,000
Retained earnings ................................................................................25,500,000
Total stockholders€™ equity .................................................................$57,500,000

The lower portion of the 2014 income statement indicates the following:

Assume that the number of shares outstanding did not change during the year.

Required
1. Compute earnings per share before extraordinary items.
2. Compute earnings per share after the extraordinary loss.
3. Which of the two EPS ratios is more useful to management? Explain your answer. Would your answer be different if the ratios were to be used by an outsider (e.g., by a potential stockholder)? Why or why not?

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Net income before tax Income tax expense (40%) Income before extraordinary items Extraordinary loss from flood Less related tax effect (40%) Net income $ 9,750,000 (3,900,000) $ 5,850,000 $(6,200,000) (3,720,000) 2,480,000 $ 2,130,000