The following information was taken from the books and records of Ludwick, Inc.:
ID: 2490453 • Letter: T
Question
The following information was taken from the books and records of Ludwick, Inc.:
1. Net Income $417,000
2. Capital Structure a. Convertible 6% bonds. Each of the 320, $1,000 bonds is convertible into 50 shares of common stock at the present date and for the next 10 years. 320,000 b. $10 par common stock, 200,000 shares issued and outstanding during the entire year. 2,000,000 c. Stock warrants outstanding to buy 15,200 shares of common stock at $20 per share.
3. Other Information: a. Bonds converted during the year None b. Income tax rate 30% c. Convertible debt was outstanding the entire year d. Average market price per share of common stock during the year $32 e. Warrants were outstanding the entire year f. Warrants exercised during the year None Compute diluted earnings per share.
Compute diluted earnings per share. (Round answers to 2 decimal places, e.g. 52.75.)
Security EPS
Common Stock $
Warrants $
Conversion Bonds $
Explanation / Answer
Details No Time weighing factor Weighted no Each bond convertible to 50 shares No of convertible bonds 320 Convertible shares no 16,000 1 16,000 Common stock 200,000 1 200,000 Stock warrant value @$20 for 15200= 304,000 No of shares that can be purchased @Avg Market Price of $32 9,500 No Of Warrants assumed to be issued without consideration=15200-9500= 5,700 Total No of shares to be considered for Diluted EPS= 221,700 Adjustment of Net income for diluted EPS Net Income 417,000 Add back interest@6% on Debt 320000= 19,200 Less Tax @30% on Interest = (5,760) Adjusted Net Income = 430,440 No of shares for diluted EPS = 221,700 Diluted EPS=430440/221700= $ 1.94 per share
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