Answer:
a) Basic EPS =$1.65
b) Diluted EPS = $1.64
Explanation:
1.
Calculating Basic Earnings Per Share ( BEPS )
Weighted average number of equity shares = $6,060,000 ÷ $10 = $606,000
Computing BEPS by applying formula:
BEPS = (Net Income - Preferred Dividend) ÷ Weighted average number of equity shares
= ($1,250,000 - $247,200) ÷ 606,000 shares
= 1.65 (approx.)
2.
Computing Diluted EPS:
Potentially dilutive common shares:
Incremental Shares
>($25 -$20)/$25 * 75,300 = 15,060 shares
> Bonds Converted :
$2,070,000 ÷ 1000 * 30 shares = 62,100 shares
> Savings of interest ( net tax)
$2,070,000 * 7% * (1-20%) = $115,920
Formula of DEPS :
( Net Income - Preferred Dividend + Interest savings (net tax) ÷ (Weighted average number of equity shares + Potentially dilutive common shares)
= ($1,250,000 - $247,200 + $115,920 ) ÷(606,000 + 15,060 + 62,100) shares
= $1,118,720 ÷ 683,160
= 1.64 (approx.)
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