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Gator, Inc. had net income of $1,650,000 and 500,000 common shares outstanding in 2018. The company...

Gator, Inc. had net income of $1,650,000 and 500,000 common shares outstanding in 2018. The company paid $30,000 in common stock dividends during the year. The company has 200 convertible bonds outstanding that have a coupon rate of 8% and a par value of $1,000 per bond. Each bond can be converted into 150 common shares. The company's tax rate is 30%. What was the company's diluted earnings per share (EPS) in 2018?

a. $3.078

b. $3.134

c. $3.217

d. $3,330

e. $3,564

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Expert Solution

Calculate no of shares outstanding
Common shares outstanding beginning          500,000
Convertible common shares            30,000 200*150
Total no of shares outstanding          530,000
Calculate adjusted net income if bonds are converted
Adjusted net income Net income + After tax interest
Adjusted net income 1650000+(200*1000*8%*(1-0.3))
Adjusted net income 1650000+11200
Adjusted net income $1,661,200
Diluted earnings per share Adjusted net income/No of shares outstanding
Diluted earnings per share 1661200/530000
Diluted earnings per share              3.134
Thus, diluted earnings per share is $3.134

jeff jeffy answered 1 year ago
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