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Diluted EPS-Solution

ABC Inc reported a net income of $500,000 in 2019 with 100,000 shares of common stock outstanding at the beginning of the year. During 2019, ABC Inc issued 20,000 new common shares and 10,000 convertible preferred shares paying a 5% dividend. They also issued 1,000 convertible bonds with an 8% coupon rate. To calculate diluted earnings per share, additional shares from preferred shares converting, bonds converting, and stock options being exercised are included in the denominator.

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453 views4 pages

Diluted EPS-Solution

ABC Inc reported a net income of $500,000 in 2019 with 100,000 shares of common stock outstanding at the beginning of the year. During 2019, ABC Inc issued 20,000 new common shares and 10,000 convertible preferred shares paying a 5% dividend. They also issued 1,000 convertible bonds with an 8% coupon rate. To calculate diluted earnings per share, additional shares from preferred shares converting, bonds converting, and stock options being exercised are included in the denominator.

Uploaded by

sunit das
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd

In 2019, ABC Inc reported a net income of $500,000 and had 100,000 shares of common stock at the begining

Sept ABC Inc issued 20,000 new common shares issued

During 2019, ABC Inc issued 10,000 convertible Preferred shares paying preffered dividend of 5%, par $100 p
outstanding. Each Preferred stock will be converted into 5 shares of common stock.
Also In 2019 ABC Inc issued, at par, 1000, $1,000, 8% bonds, each convertible into 100 shares of common stoc

Stock Options outstanding at the beginning of the year: 10,000 with the exercise price of $50 (Average market
company shares during the year was $60 per share)

Calculate Diluted Earnings per share Assume tax rate – 30%  and company have Jan-Dec as Financial Year

Net income 500,000.00


Number of common shares on Jan 1 100,000
New share issued on 1 Sep 20,000
Number of pref shares 10,000
Pref Div rate 5%
Number of bonds 1,000.00
Value of each bond 1,000.00
Bond coupon rate 8%
Exercise price 50.00
Market Price 60.00
Number of options 10,000.00
tax rate 30%

Weighted Avg number of shares 106,666.67

Particulars ($) Basic EPS


Net income 500,000
Less: Preferred Dividend -50,000
Add: After-tax cost of interest
Numerator 450,000
Weighted average number of common
106,667
shares outstanding
Additional shares issued if  preferred
0
shares converted
Additional shares issued if debt
0
converted
Additional shares issued If options
0
exercised (in-the-money)
Denominator 106,667
EPS 4.2188
0,000 shares of common stock at the begining of year. On 1

s paying preffered dividend of 5%, par $100 preferred stock


s of common stock.
h convertible into 100 shares of common stock.

with the exercise price of $50 (Average market price of

d company have Jan-Dec as Financial Year

Diluted EPS
500,000

56,000
556,000

106,667

50,000

100,000

1,667

258,333
2.1523

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