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23 6500 diluted eps as if as continually remind

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Unformatted text preview: e: Share Share Diluted Adjusted Net Income-Preferred Dividend EPS = Total Shares Assumed Issued $8,000 Diluted EPS = = $1.23 6,500 Diluted EPS -- “As If ” As • Continually remind yourself that Continually the events you are considering when computing diluted EPS did not occur. not • Bonds were not converted, Bonds options were not exercised, etc. options • Diluted EPS is providing Diluted information as if these events occurred. occurred. “If-Converted” Method-Example: Basic Data Assume the following: – Net Income – 10% Convertible Bonds issued 1/1/X1 issued – 15% Convertible Bonds issued 7/1/X1 issued – Common Shares Outstanding (no changes during year) (no $10,000 5,000 2,000 10,000 “If-Converted” Method-Example: Basic Data (continued) – Tax Rate 40% – Conversion Terms: • 10% Bonds: 15 common shares per 10% $100 bond $100 • 15% Bonds: 20 common shares per 15% $100 bond $100 “If-Converted” Method--Example: If-Converted” Basic Earnings Per Share Basic Basic EPS = Net Income-Preferred Dividend Weighted Average Common Shares Outstanding $10,000 = $1.00 Basic EPS = 10,000 “If-Converted” Method--Example: If-Converted” Net Income for Diluted EPS Net Net Income Interest Savings 10% Bond 15% Bond Less: Tax Effect Adjusted Net Income $10,000 $ 500 150 260 390 $10,390 “If-Converted” Method-Example: Number of Shares Actual Shares Outstanding Incremental Shares: 10,000 10% Bond ($5,000 / 100 x 15) 10% 750 15% Bond ($2,000 / 100 x 20 x 1/2) 15% 200 Total Shares Assumed Issued 950 10,950 “If-Converted” Method--Example: If-Converted” Fully Diluted Earnings Per Share Fully Diluted Adjusted Net Income-Preferred Dividend = Total Shares Assumed Issued EPS $10,390 Diluted EPS = = $0.95 10,950 Convertible Preferred Stock Convertible • Remember that preferred Remember dividends were initi...
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