Question

During the current year, South Corporation had 16.0 million shares of common stock outstanding. Four thousand 15% convertible bonds, each with $1000 face value, were issued at face amount at the beginning of the year. South reported net income of $4.0 million for the year. Each bond is convertible into 10 shares of common stock. The tax rate is 25%. What is diluted EPS (rounded)

Answer 1

Diluted EPS=$0.187 per share

Step-by-step explanation:

Diluted EPS = Income available to ordinary shareholders / Total number of shares available after conversion

Total number of converted shares = 4,000× 10= 40,000 units

Total number o shares after conversion = 40,000+ 16,000,000= 16,040,000 units

$

Net income = 4,000,000

Tax rate (25% × 4,000,000) (1,000000 )

Net income 3,000,000

Diluted EPS = Net income /Number of shares

= 3,000,000/16,040,000=

=$0.187 per share

Diluted EPS=$0.187 per share