# 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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## This note was uploaded on 01/07/2010 for the course ACCOUNTING adm3340 taught by Professor Collier during the Fall '09 term at University of Ottawa.

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