Question

At December 31, 2017, the financial statements of Chimera Corporation
included the following data:
	Operating Income for 2017					$1,026,666,666
	Common Stock, $1 par value
		Shares outstanding 1/1/17				138,750,000
		Treasury shares purchased 2/1/17				22,200,000
		2-for-1 stock split 7/1/17
		New shares issued 9/1/17				16,650,000
	Preferred Stock, 10%, $50 par, cumulative
	nonconvertible					$64,750,000
	Preferred Stock, 8%, $40 par, cumulative,
	convertible into 1.25 shares of common each					$92,500,000
	Bonds Payable, 12.5%, $1,000 par,
	convertible into 100 shares of common each					$185,000,000
	Common stock warrants outstanding for
	4,000,000 shares of common, option price $15
	Market price of the stock averaged $20 per share during 2017.
	The convertible preferred stock and bonds payable were issued at par in 2015.
	The corporate tax rate for 2017 is 40%.
Required:
	(1) Calculate Basic EPS; use good format (show all calculations)
	(2) Calculate Diluted EPS; use good format (show all calculations)

Answer 1

1			Change	Final	Period in month	Ratio (period/12)	Average number of outstanding shares (Final*Ratio)
Jan 1	Beginning			138750000	1	0.08	11562500
Feb 1	Treasury Stock		-22200000	116550000	5	0.42	48562500
Jul 1	Split	2 for 1	116550000	233100000	2	0.17	38850000
Sep 1	New		16650000	249750000	4	0.33	83250000
					12		182225000
2
Basic Earning Per Share	(Net income-Preferred Dividend)/weighted average no of shares
Basic Earning Per Share	(1026666666-6475000-7400000)/182225000
Basic Earning Per Share	5.56
Preferred Dividend	64750000*10%=6475000
	92500000*8%=7400000
3	Additional share for the purpose of Dilluted earning per share
	8% convertible preferred stock	(92500000/40)*1.25		2890625
	Stock Option:	(20-15)/20(4000000)		1000000
	12.5% Convertible Bond	185000000/1000*100		18500000
	Total Additional shares for Dilluted EPS			22390625
	Dilluted EPS:
	Net After tax income		1026666666
	Add: back interest on bond	185000000*12.5%	23125000
	Less: Income Tax 40%	40%	9250000
	Net income for Dilluted EPS		1040541666
	Diluted EPS	1040541666/(182225000+22390625) additional share)
	Diluted EPS	5.09