Problem 5-18 Leverage and stockholder wealth [LO4]

Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $129,800. The separate capital structures for Sterling and Royal are shown next:

Sterling

Royal

Debt @ 11%	$	708,000	Debt @ 11%	$	236,000
Common stock, $5 par		472,000	Common stock, $5 par		944,000
Total	$	1,180,000	Total	$	1,180,000
Common shares		94,400	Common shares		188,800

a.	Compute earnings per share for both firms. Assume a 30 percent tax rate. (Round your answers to 2 decimal places.)

	Earnings Per Share
Sterling	$
Royal	$

b.	In part a, you should have gotten the same answer for both companies