Question

On January 1, 2027, Ajax Corporation had 10 million shares of common stock, issued and outstanding....

On January 1, 2027, Ajax Corporation had 10 million shares of common stock, issued and outstanding. On October 1, 2027 Ajax issued an additional 1 million shares of common stock. Ajax also has $40 million face value, 6.25% convertible bonds outstanding for the entire year. The bonds are convertible into 2 million common shares. Ajax has a tax rate of 40% and net income of $14 million in 2027. What is Ajax’s diluted earnings per share for 2027?

Question 6 options:

$1.35

$1.37

$1.27

$1.22

Homework Answers

Answer #1

Answer: $ 1.27

Diluted EPS workings:

Diluted EPS = Adjusted Net Income/Weighted average shares outstanding after dilution

Diluted EPS = $ 15,500,000/12,250,000 = $ 1.27

Weighted average shares outstanding(after dilution) = {(10,000,000) x 12/12} + {(1,000,000) x 3/12} + {(2,000,000) x 12/12} = 12,250,000 Shares

Adjusted Net Income

= Net Income + Interest on Convertible bonds - tax on Interest

= $ 14,000,000 + ($ 40,000,000 x 6.25%) - ($ 40,000,000 x 6.25% x 40%)

= $ 14,000,000 + $ 2,500,000 - $ 1,000,000

= $ 15,500,000

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