value: 5.00 points lgnatius Corporation had 15 million shares of common stock ou
ID: 2535620 • Letter: V
Question
value: 5.00 points lgnatius Corporation had 15 million shares of common stock outstanding during the current calendar year. It issued 18,000, $1,000, convertible bonds on January 1. Each bond is convertible into 50 shares of common stock. The bonds were issued at face amount and pay interest quarterly at an annual rate of 12%. On June 30, Ignatius issued 180,000 shares of $100 par 6% cumulative preferred stock. Dividends are declared and paid semiannually. Ignatius has an effective tax rate of 40%. Ignatius would report the following EPS data (rounded to 2 decimal places) on its net income of $28 million: Basic EPS Diluted EPS 1.90 $1.83 $1.87 $1.83 $1.76 $1.81 $1.76 O Option a O Option c O Option d O Option bExplanation / Answer
Answer – Option B [Basic EPS - $1.83, Diluted EPS - $1.81 ]
Basic Earnings per share
Basic EPS = [ Net Income – Preferred Dividend ] / Weighted average number of common shares
Preferred Dividend = 180000 shares x $100 x 6% x 6/12 = $5,40,000
Basic EPS= [$2,80,00,000 - $5,40,000 ] / 1,50,00,000 Shares
= $1.83 per share
Diluted Earnings per share
Diluted Earnings per share = [ Diluted Earnings ] / Weighted average number of common shares
After Tax Bond Interest = 18,000 x $1000 x 12% x 0.60 = $12,96,000
Potential Diluted Shares = 18,000 x 50 = 9,00,000
Diluted Earnings per share = [$2,80,00,000 - $5,40,000 +$1296000 ] / [1,50,00,000 + 9,00,000 ]
= $2,87,56,000 / 1,59,00,000Shares
= $1.81 per share
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