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anynameis23 · Nov 9, 2011, 10:17 PM

Hello, I'd really appreciate any help. Even though I did exercises and understand the basics, I'm not able to solve these two problems. Thank you in advance.

Question 1
Partial answer: to part b is $0.76/share
a) calculate basic eps for 2011
b) calculate diluted eps for 2011, ignoring the debt/equity requirement.

December 31,2011
L/T debt
Notes payable, 10 % $ 2 000 000
4 % convertible bonds payable $ 3 000 000
6 % convertible bonds payable $ 4 000 000
Total l/t debt $ 9 000 000
Shareholder's equity
0.8 cumulative, non par value, convertible preferred
unlimited authorized, 280 000 issued and outstanding $ 4 000 000
Common shares, 1 800 000 issued and authorized $ 18 000 000
Contributed surplus $ 100 000
R/E $ 5 000 000
Total Shareholder's equity $ 27 100 000
Notes and Assumptions
Options were granted/written in 2010 that give the holder the right to purchase 50 000 common shares at $12. The av. Market price of the shares during 2011 is $18. No options exercised in 2011.
The 4% bonds were issued in 2010 at face value. The 6% bonds were issued on July 1, 2011 at face value. Each bond is convertible into 80 common shares. (each has a face value of 1 000)
The convertible preferred shares were issued at the beginning of 2011. Each share of preferred is convertible in one common.
The average income tax rate is 42%
The common share were outstanding during the entire year
Preferred dividends not declared in 2011
Net income is 1 750 000 for 2011
No bonds or preferred shares were converted in 2011.

Question 2
Partial answer: basic eps $ 2.73/share, diluted eps $ 2.58/share
a. based on the info, do you agree with the calculation of eps for the year? If not, revise.
b. Assume the call options had been issued for 140 000 common shares at $10. They were outstanding at the beginning of the year and none had been exercised or cancelled during the year. The av. Market price of the common share were $20 and the ending market price $ 25. Prepare calculation for eps.

Info:
Net income $ 3 374 960
Common shares issued and outstanding
Beg. Of year 1 285 000
End of year 1 200 000
Average 1 242 000
EPS: 3 374 960/ 1 242 000 = $2.72/share

The only equity securities are the common shares
There are no options or warrants outstanding to purchase common shares
There are no convertible debt securities
Activity in common shares during the year are:
Outstanding, jan 1 1 285 000
Acquired, oct 1 (250 000)
Issued, dec 1 165 000
Outstanding, dec 31 1 200 000

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