At 2020 fye Poppers Corp. Net Income was $4.830 m and the company had an issue...

At 2020 fye Poppers Corp. Net Income was $4.830 m and the company had an issue of 24,000
options with a strike price of $50.00. There were 2.8 m shares of common stock outstanding. The company’s market
cap was $127 m and its balance sheet showed $3.6m of $100 par, 4.3% convertible preferred stock. Poppers uses the
treasury method for calculating diluted eps. The preferred stock may be converted at the ratio of four common shares
per one share of preferred.

What is the basic and fully diluted eps?

Please explain how you got the answer

Solutions

Expert Solution

For EPS
	Denominator
		Outstanding Common share	2.8	million
		Total Denominator	2.8	million

For Diluted EPS
	Denominator
	Outstanding Common share	2.8	million

	Convertible preference stock	0.144	million	(3.6/100)*4

	Diluted part of option*		0	as the market price of share is $45.38 which is lower than strike price so option is out of money.
		Total Denominationr	2.944	million



	Diluted part of option*	=options available (market price-exercise price)/market price
		Strike price	= 50	per share
		Market price	=127/2.8
			45.36	per share
For EPS
	Numerator	=net income - preference dividend
		=4.830-(3.6*4.3%)
		4.6752	million $



For Diluted EPS
	Numerator	=Numerator as per DPS + Preference dividend
		=4.6753+(3.6*4.3%)
		4.830	million $


		Numerator	Denominator	EPS
	basic	4.6752	2.8	1.669714	per share
	Diluted	4.830	2.944	1.640659	per share

ekkarill92 answered 1 year ago

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