Question

I am trying to figure out the diluted EPS for the following:

Minal Hair Products, a New York-based corporation is preparing financial statements for its financial year ended June 30, 2010. The equity capital on July 1, 2009 consisted of 1 million shares of common stock outstanding and 20,000 shares of $50 par value, 6%, convertible preferred stock. Each preferred stock was convertible into 2 shares of common stock. There were no preferred dividends in arrears. The debt capital consisted of $600,000 worth of 5%, $1,000 convertible bonds. Each bond was convertible into 30 shares of common stock. Assume a Tax Rate of 40%.

The net income for the financial year ended June 30, 2010 was $200,000.

On October 1, 2009, Minal required some funds for expansion into New Jersey and sold an additional 600,000 shares of the common stock at $20 per share. On April 1, 2010, Minal also had a 1 for 3 stock split of its common shares. These were the only stock transactions that occurred during the financial year.

Answer 1

Diluted EPS = Net income / (no of common shares outstanding+Other convertible instruments)
Net income for financial year			$200,000
No of common shares outstanding = (1000000+600000)*3/1						4800000
Other convertible instruments :
Preferred stock = 20000*2						40000
Bonds = 600000/1000*30						18000
						4858000
Diluted EPS = Net income / (no of common shares outstanding+Other convertible instruments)
200000/4858000 shares
$ 0.0412