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10. Costco had $4,000,000 of net income for 2017, with a weighted-average number of common shares...

10. Costco had $4,000,000 of net income for 2017, with a weighted-average number of common shares outstanding of 100,000. Costco has two convertible bonds: 1) 1/1/17 a 4% bond sold at 100 of $1,000,000 face value convertible into 20,000 shares and 2) 6/1/17 a 10% bond issued at 100 of $1,000,000 face value convertible into 30,000. Costco has a tax rate of 30%. What are the Basic EPS and Diluted EPS?

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Answer #1
Basic EPS = Net Income/Weighted-average number of common shares outstanding
Basic EPS =  $4,000,000/100,000 $             40.00 per share
Diluted EPS
Adjusted Net Income = $4,000,000 + (1,000,000 x 4% x 70%) + (1,000,000 x 10% x 7/12 x 70%) $ 4,068,833.33
Weighted Average Number of Shares = 100,000 + 20,000 + 30000 x 7/12        137,500.00 Shares
Diluted EPS = $4,068,833.33/137,500 $             29.59 per share
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