The Stockholders' Equity section of the balance sheet for Lahey Construction Company at the end of 2012 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..................................................................$57,500,000
The lower portion of the 2012 income statement indicates the following:
Net income before tax.......................................................................$ 9,750,000
Income tax expense (40%) ..................................................................(3,900,000)
Income before extraordinary items.........................................................$ 5,850,000
Extraordinary loss from flood...................................$ (6,200,000)
Less related tax effect (40%) .....................................2,480,000 ..............(3,720,000)
Net income $ 2,130,000
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?