In: Accounting
Net income = $400000
Preferred dividend = 20000 * 3.50 = 70000
Earnings available for common share holders’ = 400000 - 70000 = 330000
Weighted average number of common share outstanding (WANCSO) =
Beginning share outstanding = 100000 * 12 / 12 = 100000
Add: On April 01, issue = 10000 * 9 / 12 = 7500
Less: On sep 1, Treasury stock = 15000 * 4 / 12 = (5000)
WANCSO = 100000 + 7500 - 5000 = 102500
Basic EPS = Earnings available for common share holders’ / WANCSO
Basic EPS = 330000 / 102500 = $3.22 per share
Diluted EPS
EPS effect of convertible preferred share = 70000 / (20000 * 3) = 1.166
Dilutive nature
EPS effect of convertible Bond
After tax interest = 1000000 * 8% - 25% = $60000
Converted share = 1000000 / 1000 * 30 = 30000
EPS effect of convertible Bond = 60000 / 30000 = 2
Dilutive nature
Option
Option amount = 15000 * 40 = 600000
Repurchased share using these amount = 600000 / 50 = 12000
So, new issue of share for option = 15000 - 12000 = 3000 share
Ranking based most dilutive to least dilutive.
1 - option
2 - Preferred share
3- Bond
Numerator |
Denominator |
EPS |
|
Basic EPS |
330000 |
102500 |
$3.22 |
Option |
0 |
3000 |
|
Sub total |
330000 |
105500 |
$3.13 |
Preferred share |
70000 |
60000 |
|
Sub total |
400000 |
165500 |
$2.42 |
Bond |
60000 |
30000 |
|
Sub total |
460000 |
195500 |
$2.35 |
Diluted EPS = $2.35 per share