Painted Box Corporation Common shares 5,000, par $1, Capital $5,000, paid-in capital-excess of par $15,000 Convertible...

Painted Box Corporation

Common shares 5,000, par $1, Capital $5,000, paid-in capital-excess of par $15,000

Convertible preferred shares 100, par $100, capital $10,000, rate 6%, convertible into # shares of common 300

Convertible bonds, par $10,000, interest rate 12%, convertible into # shares of common 800

Stock options for # shares of common 300, option price $5, market price $6

Earnings $12,500, tax rate 30%

( the basic Eps is 2.38 and Diluted Eps is 2.17. How did they get Diluted Eps 2.17?)

Solutions

Expert Solution

Diluted EPS = Diluted Earnings / No of shares Outstanding

Diluted Earnings = Earnings + Preferred Dividend + Bond Interest After Tax

= $12500 + ($10000 x 6%) + ($10000 x 12% x 0.70 )

= $12500 + $600 + $840

= $13,940

No of shares Outstanding = Common shares outstanding + Convertible preferred shares + Convertible bonds + Stock Options

= 5000 + 300 + 800 + 300

= 6400 Shares

Diluted EPS = Diluted Earnings / No of shares Outstanding

= $13,940 / 6400 Shares

= $2.17 per share

ekkarill92 answered 1 year ago

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