You are introduced to convertible preferred stock in our final week. Let’s prete

Question

You are introduced to convertible preferred stock in our final week.      Let’s pretend we have the following information regarding a company that we are evaluating:

    Net income – $1,000,000

    Weighted average common shares outstanding – 100,000 shares

    Preferred dividends paid – $100,000

    Preferred shares outstanding – 10,000

Each share of preferred stock is convertible into 5 shares of common stock.

(3) Let’s assume that all shares were deemed to be converted as of the beginning of the year.    What would Earnings per Share be after the conversion?

Explanation / Answer

EPS after conversion;

Preferred shares converted into common stock=10000×5=50000

Weighted average common share outstanding=100000+50000=150000 shares

Eps=net income avlaible for common stock dividend/weighted average common stock outstanding

=1,000,000/150,000= 6.67 per share

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.