7.Quiz7Sol - and 1,000, $9 cumulative preferred shares...

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ADM3340A Fall 2008 Quiz #7 1/1 ADM3340A Fall 2008 Quiz #7 Suggested Solution Question 1 Calculate the weighted average shares for EPS purposes if a firm started the year with 100 common shares outstanding, reissued 80 treasury shares March 1, split 2 for 1 on April 1, purchased 50 shares for the treasury on July 1, issued a 40% stock dividend on November 1, and issued 120 shares under a stock option plan on December 1. Answer = {[100 + 80(10/12)]2 50(1/2)}1.4 + 120(1/12) = 442 Or: 100 x 2/12 x 2 x 1.4 46.667 180 x 1/12 x 2 x 1.4 42.000 360 x 3/12 x 1.4 126.000 310 x4/12 x 1.4 144.667 434 x1/12 36.167 554 x1/12 46.167 441.667 Question 2 At the beginning of the year, a firm issued $100,000 of 5% bonds (at face value) convertible into a total of 2,000 of the firm's common shares,
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Unformatted text preview: and 1,000, $9 cumulative preferred shares convertible into a total of 1,000 of the firm's common shares. The tax rate is 40%. There were no conversions during the year; the firm earned $100,000, and had 20,000 common shares outstanding the entire year. Compute basic EPS and diluted EPS. Pref. Dividend 1,000 x $9 = $9,000 Bond Interest (net of tax) ( 100,000 x 5% x [1 .4]) = $3,000 Individual testing: Pref. $9,000 1,000 = $9.00* Anti-dilutive Bond $3,000 2,000 = $1.50 dilutive Basic EPS ($100,000 $9,000) 20,000 = $4.55 Diluted NI SHARE = EPS Basic $91,000 20,000 $4.55* Bond 3,000 2,000 94,000 22,000 $4.27...
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