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In 2016, Windsor Enterprises issued, at par, 60 $1,000,  8% bonds, each convertible into  100 shares of common...

In 2016, Windsor Enterprises issued, at par, 60 $1,000,  8% bonds, each convertible into  100 shares of common stock. Windsor had revenues of $ 18,800 and expenses other than interest and taxes of $ 10,000 for 2017. (Assume that the tax rate is 40%.) Throughout 2017,  1,700 shares of common stock were outstanding; none of the bonds was converted or redeemed.

(a) Compute diluted earnings per share for 2017. (Round answer to 2 decimal places, e.g. $2.55.)

(b) Assume the same facts as those assumed for part (a), except that the  60 bonds were issued on September 1, 2017 (rather than in 2016), and none have been converted or redeemed. Compute diluted earnings per share for 2017. (Round answer to 2 decimal places, e.g. $2.55.)

(c) Assume the same facts as assumed for part (a), except that  20 of the  60 bonds were actually converted on July 1, 2017. Compute diluted earnings per share for 2017. (Round answer to 2 decimal places, e.g. $2.55.)

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a) Compute diluted earnings per share for 2017 1. Weighted Average no of shares 1,700 2. Compute basic earnin r share Basic EPS revenues expenses Interest Net Income Tax Net Income after tax Earnings available for Equity Holder Weighted Average no of shares EPS 18,800 $10,000 4800 4,000 $1,600 $2,400 $2,400 1,700 1.41 3. Identify which of the potentially dilutive securities (preferred stock, bonds, options) are dilutive Increase in earnings available to Equity holders on conversion of potential equity shares Increase in no. of Equity Shares earnings per incremental shares Increase in Earnin 60,000 6,000 8% convertible bonds Conversion in to shares Interest savings @8% Tax @40% Interest savings (net of tax $4,800.00 S 1,920.00 $ 2,880.00 6,000 0.48 4. Compute diluted earnings per share Computation of Diluted Earnin share No of equity attributable shares Net profit attributable per share Net profit 1,700 6,000 7,700 As reported 2,400.00 2,880 5,280 1.41 8% convertible bonds 0.69 DPS 0.69 b) Assume the same facts as those assumed for part (a), except that the 60 bonds were issued on September 1, 2017 (rather than in 2016), and none have been converted or redeemed. Compute diluted earnings per share for 2017 It will not impact the dilluted earnin r share since we need to consider standing Convertible securities DPS 0.69

(c) Assume the same facts as assumed for part (a), except that 20 of the 60 bonds were actually converted on July 1, 2017. Compute diluted earnin Compute the weighted average number of common shares Company will use to compute basic earnings per share r share for 2017 1-Jan-17 Shares Issued and outstandin 1,700 2,000 1-Jul-17 Conversion The second step is average out the number of month the shares were outstandin # of Months 12 6 12 20,400 12,000 32,400 2,700 1-Jan-17 Shares Issued and outstandin 1,700 2,000.00 1-Jul-17 Conversion Sum Weighted Average no of shares 2. Compute basic earnin r share Basic EPS revenues expenses Interest Net Income Tax Net Income after tax Earnings available for Equity Holder Weighted Average no of shares EPS 18,800 $10,000 4800 4,000 $1,600 $2,400 $2,400 2,700 0.89 3. Identify which of the potentially dilutive securities (preferred stock, bonds, options) are dilutive Increase in earnings available to Equity holders on conversion of potential equity shares Increase in no. of Increase in Equi Earnin earnings per incremental shares Shares 8% convertible bonds Conversion in to shares Interest savings @8% Tax @40% Interest savings (net of tax 40,000 4,000 3,200.00 S1,280.00 S 1.920.00 4,000 0.48 4. Compute diluted earnin r share Computation of Diluted Earnin r share No of equity Net profit attributable Net profit attributableshares share As reported 8% convertible bonds 2,700 4,000 6,700 2,400.00 0.89 1,920 4,320 0.64 Dilutive DPS 0.64

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