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Question 1: During the year P had 14195 shares of common stock outstanding. P had fully...

Question 1:

  • During the year P had 14195 shares of common stock outstanding.
  • P had fully vested incentive stock options exercisable at $4 per share to obtain 1203 shares of common stock when the average market price and ending market price of the stock of common stock was $50.
  • The net income for the year was $126693.
  • The income tax rate was 37%.

For the year diluted EPS was:

Question 2:

At December 31, 2016 and 2015, P Corp. had

  • 16678 shares of common stock
  • 1533 shares of 12%, $90 par value convertible preferred stock convertible share for share into common stock
  • Net income for 2016 was $120132
  • The income tax rate was 36%

For 2016, diluted EPS was:

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Homework Answers

Answer #1

Solution to Question 1:

Calculation of Dilutive Shares:
Common Stock Outstanding = 14,195
Stock Options Outstanding (n0) = 1,203
Exercise Price (X) = $4 per share
Average Market Price of Share (P) = $50 per share

Diluted EPS = $8.28 per share

Solution to Question 2:

Common Stock Outstanding = 16,678
Convertible Preferred Stock = 1,533
No. of Dilutive Shares = 1,533

Earnings Available for Equity Holders = Net Income - Preferred Dividend

Preferred Dividend = 1,533 * $90 * 12% = $16,556.40

Earnings Available for Equity Holders = $120,132 - $16,556.40 = $103,576.60

Diluted EPS = $5.69 per share

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