Question

# Kweli Co. began the year with 1,700,000 shares issued and outstanding. On March 1, 2017, the...

Kweli Co. began the year with 1,700,000 shares issued and outstanding. On March 1, 2017, the company enacted a 2:1 stock split. On August 1, 2017, the company repurchased 500,000 shares. Kweli Co. has the following potentially dilutive instruments. • 50,000 shares of \$300 par value 10% preferred shares, each convertible into 5 shares of common stock. • 200,000 options to purchase the firm’s \$1 par value common stock at an exercise price of \$40 a share. The options were issued when the firm’s stock was trading at \$35 a share. The average stock price of Kweli’s common shares for 2017 was \$55.

Determine the following:

A. The amount of weighted-average common shares outstanding for Kweli at 12/31/17.

B. Basic EPS for Kweli Co. Assume net income for 2017 was \$5,500,000.

C. The diluted EPS figure Kweli would report for 2017. Report dilution indices and intermediate DEPS calculations for consideration of partial credit.

1. Weighted Average Common Shares Outstanding:
 Opening Count of Shares 1700,000 Issue of New Shares 1700,000*10/12 1416,666.667 Buy Back of Shares 500,000*5/12 (208,333.333) Weighted Average of Common shares Outstanding 2908,333.334

Basic EPS: = 5500000/2908333.334 = \$1.89

Diluted EPS: = 5500000/3358,333.334 = \$1.64

Diluted Equity Shares = Common Shares + Potential preference shares + Options

= 2908,333.334+(50,000*5) + 200,000

= 3358,333.334

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