Question

A firm issued $300,000 8% bonds (at face value) convertible into 4,000 of the firm's common...

A firm issued
$300,000 8% bonds (at face value) convertible into 4,000 of the firm's common shares
3,000 $30 cumulative preferred shares each convertible into 3 common share
The tax rate is 30%
The firm had earnings $300,000
There was 60,000 common shares outstanding the entire year.

Compute for basic Eps and Diluted Eps and show your solution

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Homework Answers

Answer #1

Basic EPS= Earning After Tax

    Outstanding Shares

= $ 193,200

    60,000 Shares

= $ 3.22

Diluted EPS = Earning After Tax + Bond Interest ( 1 - Tax Rate)

   Outsanding Shares + Convertible Shares

= $ 193,200 + $ 24,000x70%

60,000 + 4,000 + 3,000x3

= $210,000

    73,000 Shares

= $2.8767

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