Question

Tabb Corp has 9,293 shares of common stock outstanding at the beginning of the year. Net income was $359,293. No dividends were paid this year nor last year. On March 1st, the company purchased 2,000 shares of its common stock and held it in treasury. There was a 2 for 1 stock split that occurred on common stock on Dec. 1. The tax rate is 30%. A $1,500,000, 5% nonconvertible bond was issued June 30 of the current year at par value. The company has 2,000 shares outstanding of $100 par value 5% convertible Preferred stock (cumulative and non-participating). The stock was issued at $125 a share on April 1 this year and has current market price of $145 at year-end. One share of preferred stock can convert into 2 shares of common stock, none were converted. Calculate Basic EPS.

Answer 1

Ans:

Basic EPS is calculated on net income of the company available for equity shareholders devided by number of shares outstanding on date.

Net income available: $359,293

Dividend to be paid to preference share holders

Dividend on preference shares: 2,000*$100(face value) * 5% (rate) * 9/12 (outstanding period)= $7,500

Net income available for equity shareholders:

$359,293-$7,500= $351,793

Outstanding common stock as on end of period:

opening outstanding: 9,293

Stock split: 9,293

Total outstanding at the end: 18,586.

Basic EPS: $351,793/18,586 = $18.93 per share.