Question

An analyst compiled the following information from Hampshire, Inc.'s financial activities in the most recent year: Net income was $2,800,000. 100,000 shares of common stock were outstanding on January 1. The average market price per share for the year was $250. 10,000 shares of 6%, $1,000 par value preferred shares were outstanding the entire year. 10,000 warrants, which allow the holder to purchase 10 shares of common stock for each warrant held at a price of $150 per common share, were outstanding the entire year. 30,000 shares of common stock were issued on September 1. Hampshire, Inc.'s diluted earnings per share are closest to:

Answer 1

The answer is "$14.67"

Step-by-step explanation:

Its total average common stock must also be determined to Hampshire 's fundamental EPS ((net revenue-preferred dividends)/weighted total shares outstanding).

On January 1 now there are 100,000 pending shares and on 1 September 30,000 so the weighted average is as follows:

`=100,000 + (30,000 * (4)/(12)) \\\\= 110,000`

Basic EPS is:

`=((\$ \ 2,800,000 - (10,000 * \$ \ 1,000 * 0.06)))/(110,000) \\\\= \$ \ 20.00`

If the money was exercised, it will result in a cash flow

`= 10,000 * \$ \ 150 * 10\\\\ = \$ \ 15,000,000 \ for \ 10 * 10,000 \\\\= 100,000 \ shares.`

Its amount of shares which can be purchased through expected revenue (money inflow / current share price) is based on the cash accounting method

`= (\$ \ 15,000,000)/(\$ \ 250) \\\\= 60,000`

The number of shares to be produced:

`= 100,000 - 60,000 \\\\= 40,000\\\\ \ EPS:\\\\ = ( \$ \ 2,200,000)/((110,000 + 40,000)) \\\\= \$ \ 14.67.`