Alciatore Company reported a net income of $150,000 in 2018. The weighted-average number of common shares outstanding for 2018 was 40,000. The average stock price for 2018 was $33. Assume an income tax rate of 40%. Required: For each of the following independent situations, indicate whether the effect of the security is antidilutive for diluted EPS.
ANSWER:-
Part (1):- 10,000 shares of 7.7% of $100 par convertible cumulative preferred stock Each share be converted into two common shares
preferred dividend = (77,000[(7.7% * %100) * 10,000]
Converted shares = 2 * 10,000
=20,000
Conversion ratio for preferred stock = $(77,000 / 20,000)
=$3.85
Basic EPS =$(150,000 - 77,000) / 40,000
=$73,000 / 40,000
=$1.825
Preferred stock is anti dilutive since $8.35 not less than $1.825
part(2):- 8% convertible 10 year, $500,000 bonds, issed at face value
The bonds are convertible into 5,000 shares of common stock
After tax Interest on conversion = [ (8% * 500,000) * 60%]
=$24,000
Converted shares = 5,000
Conversion ratio for convertible bonds =$(24,000 / 5,000)
=$4.80
Basic EPS = $(150,000 / 40,000)
= $3.75
Bond is anti dilutive since $4.80 is not less than $3.75
Part (3):- stock options exercisable at $30 per share after
January 1 ,2020
Exercise price = $30
and Market price =$33
Stock options are dilutive since the exercise price of $30 per share is less than the market price of $33 per share.
Part (4):- Warrants for 1,000 common shares with an exercise price pf $35 per share .
Exercise price = $35 and Market price = $33
Warrants are anti dilutive since the exercise price $35 per share is not less than the
market price price of $33 per share.
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Alciatore Company reported a net income of $150,000 in 2018. The weighted-average number of common shares...
Alciatore Company reported a net income of $150,000 in 2018. The weighted average number of common shares outstanding for 2018 was 40,000. The average stock price for 2018 was $33. Assume an income tax rate of 40%. Required: For each of the following independent situations, indicate whether the effect of the security is antidilutive for diluted EPS. 10,000 shares of 7.7% of $100 par convertible, cumulative preferred stock. Each share may be converted into two common shares. 8% convertible 10-year,...
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