A company had profit after tax of €50,000,000 for the year ended 31 December 2020.  The number of shares in issue on 1 January 2020 was 12,000,000 and the company undertook a 2 for 1 stock split on 1st May and bought back 2,000,000 shares on 1st October financed by a debt issue.  The company has 2 million preferred shares in issue each with 10 PAR value and a dividend of 8%.   The company also has in issue convertible bonds with a total of 10,000,000 of PAR value with a coupon of 3% and each 100 of PAR convertible into 10 shares.  The company also has issued stock options covering 600,000 shares with a strike price of €25.  The share price at the end of the year was €35 and averaged €32 over the year.  The company pays tax at 20%.   Calculate EPS and diluted EPS for the company, assuming their accounting year is the same as the calendar year.

Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter16: Retained Earnings And Earnings Per Share
Section: Chapter Questions
Problem 25E
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A company had profit after tax of €50,000,000 for the year ended 31 December 2020.  The number of shares in issue on 1 January 2020 was 12,000,000 and the company undertook a 2 for 1 stock split on 1st May and bought back 2,000,000 shares on 1st October financed by a debt issue.  The company has 2 million preferred shares in issue each with 10 PAR value and a dividend of 8%.

 

The company also has in issue convertible bonds with a total of 10,000,000 of PAR value with a coupon of 3% and each 100 of PAR convertible into 10 shares.  The company also has issued stock options covering 600,000 shares with a strike price of €25.  The share price at the end of the year was €35 and averaged €32 over the year.  The company pays tax at 20%.

 

  • Calculate EPS and diluted EPS for the company, assuming their accounting year is the same as the calendar year. 

 

  • With regards to the buyback of shares, explain how the buyback would be treated in the accounts and the reasons companies buy back shares.

 

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