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Gator, Inc. had net income of $1,650,000 and 500,000 common shares outstanding in 2018.  The company paid...

Gator, Inc. had net income of $1,650,000 and 500,000 common shares outstanding in 2018.  The company paid $30,000 in common stock dividends during the year.  The company has 200 convertible bonds outstanding that have a coupon rate of 8% and a par value of $1,000 per bond.  Each bond can be converted into 150 common shares.  The company's tax rate is 30%.  What was the company's diluted earnings per share (EPS) in 2018?  

a.

$3.078
b.

$3.134
c.

$3.217
d.

$3.300
e.

$3.564
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Homework Answers

Answer #1

- Diluted EPS = (Net Income + After-Tax Cost of Interest)/(Common Shares Outstanding +Additional Shares Against Exercise of Convertible Securities)

where, Net Income = $1650,000

After-Tax cost of Interest = $1000 per Bond*8%*200 bonds*(1-0.30) = $11,200

Common Shares Outstanding = 500,000

Additional Shares Against Exercise of Convertible Securities = 150 shares per Bond*200 convetible bonds = 30,000

Diluted EPS = ($1650,000 + $11200)/(500,000 + 30,000)

Diluted EPS = $1661,200/530,000

Diluted EPS = $3.134

Option B

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