Question

PRINTER VERSION 4 BACK NEXT Exercise 17-16 (Part Level Submission) Sandhill Corp's net income for 2020 is $147,400. The only potentially dilutive securities outstanding were 1,600 call options issued during 2019, with each option being exercisable for one share at $16. None have been exercised, and 36,600 common shares were outstanding during 2020. The average market price of the company's shares during 2020 was $20. IA Calculate diluted earnings per share for the year ended December 31, 2020. (Round answer to 2 decimal places, e.g. 15.25.) Diluted earnings per share $ LINK TO TEXT Attempts: 0 of 3 used SAVE FOR LATER SUBMET ANSWER (b) The parts of this question must be completed in order. This part will be available when you complete the part above.

Answer 1

Diluted Earning Per Share

$ 3.99

Explanation:

1) while computing diluted EPS, we first check out, whether potential security is dilutive or not.

2) Here, only dilutive security is call options.

3) Security is said to be dilutive

If Market Price > Exercise Price ; its dilutive

If Market Price < Exercise Price ; its not dilutive

4) Here market price is ($20) greater than exercise price ($16). Hence it is dilutive.

5) No of share increase due to call option:

= ( $ 20 - $16) ÷ $20

= 0.2 × 1600 call option

= 320 shares increased

6) Diluted EPS:

= Net Income - ( Pref Div) ÷ Weighted Avg. No of shares outstanding

= ( $ 147,400 -0 ) ÷ ( 36,600 + 320)

= $ 147,400 ÷ 36,920

= $ 3.99