Venzuela Company’s net income for 2014 is $47,400. The only potentially dilutive
ID: 2460472 • Letter: V
Question
Venzuela Company’s net income for 2014 is $47,400. The only potentially dilutive securities outstanding were 1,300 options issued during 2013, each exercisable for one share at $8. None has been exercised, and 12,000 shares of common were outstanding during 2014. The average market price of Venzuela’s stock during 2014 was $20. Compute diluted earnings per share. Assume the same facts as those assumed for part (a), except that the 1,300 options were issued on October 1, 2014 (rather than in 2013). The average market price during the last 3 months of 2014 was $20.
Explanation / Answer
Calculation of Paid Part : = 1300 *8/20 = 520 shares
I.e Bonus Part = 1300 - 520 = 780
a) DEPS = 47400 (12000*12/12) + (780*12/12) + (580*12/12 )
= 3.56/share
b. DEPS = 47400 (12000*12/12) + (780*12/12) + (580*3/12 )
= 47400/12910 = 3.67/ share
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