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The Rockstar Corporation issued 10-year $900,000 par 6% convertible bonds on January 1, 2018 at 98....

The Rockstar Corporation issued 10-year $900,000 par 6% convertible bonds on January 1, 2018 at 98. The bonds have a par value of $1,000 with interest payable annually. Each bond is convertible into 10 shares of common stock; in two years this ratio will increase, meaning that each bond will be convertible into 30 shares of common stock. Assume Rockstar uses straight-line amortization for its bonds and that its effective tax rate is 35%. Net income in 2018 is $2,600,000 and the firm had 1,000,000 shares of common stock outstanding during the entire year. Compute diluted EPS to the 4th decimal place.Please show all calculations

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Expert Solution

Calculation:

Particulars Amount Amount
Net Income $       26,00,000
Interest on Debentures $        54,000.00
Add: Interest Amortized $          1,800.00
Total Interest Expense $        55,800.00
Less: Tax on Interest $      (19,530.00) $            36,270
Total Diluted Income $       26,36,270
No. of Common Shares           10,00,000
Convertible Debenture Shares                  9,000
Diluted No. of Share           10,09,000
Diluted EPS $            2.6128

ekkarill92 answered 2 years ago
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