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24 February, 22:46

DiCenta Corporation reported net income of $270,000 in 2020 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 5,000 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of $5 per share. DiCenta's tax rate is 20%.

Compute DiCenta's diluted earnings per share.

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  1. 24 February, 23:39
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    Basic and diluted Eps

    Basic EPS = profit after tax-preference share dividend / w. Avg No. of shares

    Basic Eps

    Income 270000

    Tax 20% 54000

    Pat 216000

    Dividend 5*5000 - 25000

    191000

    W. Avg No. shares 50000

    Basic EPS 191/50 3.82

    Diluted Eps

    PAT 191000

    Add back Dividend of assumed conversion of pref. shares 25000

    Total Income 216000

    Total No of share 60000*

    Diluted Eps 216000/60000 3.6

    *Common Stock = 50000

    Add Assumed Conversion of Pref. shares = 5000*2 = 10000

    Total Shares = 60000
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