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2 March, 06:19

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)

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  1. 2 March, 09:27
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    Diluted EPS=$0.187 per share

    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
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