Question

Asked Dec 21, 2019

2 views

Question: Computing Basic & Diluted EPS

During 2020, ABC Co. had net income of $900,000. The company has 20,000 shares of 5%, $100 par, convertible preferred stock outstanding, and 1,500, 10% convertible bonds outstanding, which were issued at par. The preferred shares and the convertible bonds were issued in 2017. Each share of convertible preferred stock is convertible into 5 shares of common stock. Each bond is convertible into 90 shares of common stock. The company has a tax rate of 21% and a weighted average shares outstanding of 800,000 throughout 2020.

Instructions:

- Compute Basic EPS for 2020
- Compute Diluted EPS for 2020

Step 1

1.

The net income is $900,000.

The weighted average shares outstanding is 800,000.

The dividends on preferred stock will be $2,000,000 × 5% = $100,000.

The basic EPS is calculated below:

Step 2

2.

The company will have more amount to distribute when bonds are converted into shares. The interest amount after tax is calculated below:

Step 3

Each preferred stock is converted into 5 common stock. So, number of stocks added would be 20,000 × 5 = 100,000.

...

Tagged in

Find answers to questions asked by student like you

Show more Q&A

Q: Bunco Game Financial Planners, Inc. promises to triple your money in 8 years. Whatrate of return (yi...

A: Let the amount invested be $100, amount at the end of 8 years is expected to be $300 ($100*3). Rate ...

Q: The Doesn’t Pay Life Insurance Co. is selling a perpetuity contract that promises to pay$10,000 annu...

A: a) An annual payment of $10000 will be made in perpetuity. The present value of this annuity would b...

Q: Assume that you purchase a five-year, $1,000 par value bond, with a 6 percent coupon and a yield of ...

A: Face Value of Bond = $1,000Coupon Rate = 6%Coupon Payment = $1,000 × 6% = $60New Yield = 8% or 0.08T...

Q: HOW MUCH SHOULD YOU DEPOSIT AT THE END OF EACH MONTH INTO A INVESTMENT ACCOUNT THAT PAYS 8% COMPOUND...

A: Calculation of Amount of Deposits and Total Interest:The amount of deposits is 338.49 and total inte...

Q: (Computing interest tax savings) Presently, H. Swank, Inc. does not use any financial leverage and h...

A: a) If the firm issues debt, then the company needs to pay interest of 4.6% on $505000. As per their ...

Q: You purchase one Ruth April 25 call contract for a premium of $1.8. You hold the option until the ex...

A: Strike price of the call option = $25Underlying price = $32Option premium = $1.8

Q: A financial institution made a $2,000,000 1-year discount loan at 11% interest, requiring a compe...

A: Effective interest rate on the loan with compensatory balance is always higher than the stated nomin...

Q: Need questions 1-7 answered including 4 a,b,c,d,e,f Assuming that there is an unlevered firm and a l...

A: Hey, since there are multiple subparts questions posted, we will answer first three question. If you...

Q: A loan commitment of $4.26 million with an up-front fee of 60 basis points and a back-end fee of 50 ...

A: Given that the total loan commitment is $4.26 million, up-front fee is 60 basis points, back-end fee...